An economic consultant for X Corp. recently provided the firm's marketing manager with this estimate of the demand function for the firm's product:
Q = 12 000 – 4P, + 3 P, -5 M+2 A,
where o represents the amount consumed of good X, P, is the price of good X, P,
is the price of good Y, M is income and A, represents the amount of advertising spent
on good X. Suppose good X sells for $200 per unit, good Y sells for $15 per unit, the
company utilizes
2 000 units of advertising and consumer income is $10 000.
i. Determine the point price elasticity of demand for good X, state whether
demand is elastic, inelastic,
unitary elastic.
5 marks
ii. Determine the cross-price elasticity of demand between good X and good Y,
and state whether these two goods are substitutes or complements?
5 marks
or