Demand for steel in the market.
A steel industry trade group estimates that the demand for steel in a particular market is given as
Qs = 2,000 - 160Ps + 8I + 140Pa,
where Qs is the demand for steel (in pounds) per year, Ps is the price of steel in cents per pound, I is income per capita in dollars, and Pa is the price of aluminum in cents per pound. Presently the price of steel is 160¢ per pound, income per capita is $20,000, and the price of aluminum is 300¢ per pound.
What is the practical interpretation of your answers to b. and c. when looked at together? Illustrate kinds of conclusions can you make about the demand for steel?
If management's objective is to maintain the quantity of steel demanded at current levels (as computed in a. above), what change in the price of steel would be necessary to compensate for a 10¢ decrease in the price of aluminum?