The demand for the Bus 207 textbook (QX) is given by the following equation:
QX = 100 - 5.0 PX + 1.5 PY - 2 PZ + 4.7 AX.
where PX = the price of the textbook, currently selling at $72.00
PZ = the price of the Study guide accompanying the text, selling at $30.00
AX = Advertising for the text, measured in units, and currently at 100
PY = the price of another managerial economics textbook, currently selling at $60.00
(a) The revenues received by an author are frequently set at 15% of the publisher's total revenue. Use price elasticity to determine whether from the author's point of view, the textbook been under priced or overpriced?
(b) By how much would the demand for the textbook change if advertising were increased by 2%?
(c) What is the optimal price of the textbook from the author's point of view?
(d) If the cost per unit of good X to the publisher is $40.00 and the publisher behaves as a monopolist, how many textbooks will be sold and at what price?
(f) As the student consumer, whose interest would you like to see prevail, the author or the publisher?