The demand curve for a product is given by QXd = 1,200 - 3PX - 0.1PZ where Pz = $300. a. What is the own price elasticity of demand when Px = $140? Is demand elastic or inelastic at this price? What would happen to the firm’s revenue if it decided to charge a price below $140? Instruction: Enter your response rounded to two decimal places. Own price elasticity: Demand is: If the firm prices below $140, revenue will: b. What is the own price elasticity of demand when Px = $240? Is demand elastic or inelastic at this price? What would happen to the firm’s revenue if it decided to charge a price above $240? Instruction: Enter your response rounded to one decimal place. Own price elasticity: Demand is: If the firm prices above $240, revenue will: c. What is the cross-price elasticity of demand between good X and good Z when Px = $140? Are goods X and Z substitutes or complements? Instruction: Enter your response rounded to two decimal places. Cross-price elasticity: Goods X and Z are:

Solution:

a. The quantity demanded at the specified prices is 750 units :

= 1,200 - 3(140) - 0.1(300) = 750.

Substitute the necessary details in the formula for elasticity.

= -3( ) = -3 ( 140 / 750) = -0.56.

As that is less than one in actual interest, demand at this level is inelastic. If the business paid a cheaper amount, the gross sales will be decreased.

b. The quantity demanded at the specified prices is 450 units:

= 1,200 - 3(240) - 0.1(300) = 450.

Substitute the necessary details in the formula for elasticity.

= -3() = -3(240 / 450) = -1.6.

Because that is greater than one in real value, competition at this level is elastic. If the business raised the profit, the net sales will decrease.

c. At the price specified, the quantity demanded is 750 units, as seen in section a. Substituting the necessary details in the elasticity calculation is as follows:

= -0.1 () = -0.1(300 / 750) = -0.04.  

Even though this number is negative, products X and Z are complementary.

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