Problem 1. The demand for good X is estimated to be Qxd = 10,000 − 4PX + 5PY + 2M + AX where PX is the price of X, PY is the price of good Y, M is income, and AX is the amount of advertising on X. Suppose the present price of good X is $50, PY = $100, M = $25,000, and AX = 1,000 units.

a) Calculate the quantity demanded of good X.

b) Calculate the own price elasticity of demand for good X. Is demand for good X elastic or inelastic?

c) If the firm selling good X wants to increase total revenue, would you recommend lowering or increasing price? Explain your answer.

d) Calculate the cross-price elasticity between goods X and Y. Are the goods X and Y substitutes or complements?

e) Calculate the income elasticity of good X. Is good X normal or an inferior good?

Problem 1. The demand for good X is estimated to be Qxd = 10,000 − 4PX + 5PY + 2M + AX where PX is the price of X, PY is the price of good Y, M is income, and AX is the amount of advertising on X. Suppose the present price of good X is $50, PY = $100, M = $25,000, and AX = 1,000 units.

a) Calculate the quantity demanded of good X.

b) Calculate the own price elasticity of demand for good X. Is demand for good X elastic or inelastic?

c) If the firm selling good X wants to increase total revenue, would you recommend lowering or increasing price? Explain your answer.

d) Calculate the cross-price elasticity between goods X and Y. Are the goods X and Y substitutes or complements?

e) Calculate the income elasticity of good X. Is good X normal or an inferior good?

Problem 1. The demand for good X is estimated to be Qxd = 10,000 − 4PX + 5PY + 2M + AX where PX is the price of X, PY is the price of good Y, M is income, and AX is the amount of advertising on X. Suppose the present price of good X is $50, PY = $100, M = $25,000, and AX = 1,000 units.

a) Calculate the quantity demanded of good X.

b) Calculate the own price elasticity of demand for good X. Is demand for good X elastic or inelastic?

c) If the firm selling good X wants to increase total revenue, would you recommend lowering or increasing price? Explain your answer.

d) Calculate the cross-price elasticity between goods X and Y. Are the goods X and Y substitutes or complements?

e) Calculate the income elasticity of good X. Is good X normal or an inferior good?

a) Calculate the quantity demanded of good X.

a) Calculate the quantity demanded of good X.

e) Calculate the income elasticity of good X. Is good X normal or an inferior good?

e) Calculate the income elasticity of good X. Is good X normal or an inferior good?