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A firm has estimated the following demand function for its product:
Q = 100 - 5 P + 5 I + 15 A

Where Q is quantity demanded per month in thousands, P is product price, I is an index of consumer income, and A is advertising expenditures per month in thousands. Assume that P = $200, I = 150, and A = 30. For simplicity in calculating the results, use the point elasticity formulas to complete the calculations indicated below.

(i) Calculate quantity demanded.
(ii) Calculate the price elasticity for demand. Is demand elastic, inelastic, or unit elastic?
(iii) Calculate the income elasticity of demand. Is the good normal or inferior?
(iv) Calculate the advertising elasticity of demand.

Econometrics, Economics

  • Category:- Econometrics
  • Reference No.:- M9695415

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