04 Jun Question The exercise below is from Chapter 4 of textbook titled Ma
Question
The exercise below is from Chapter 4 of textbook titled Managerial Economics, 12th Edition by Mark Hirschey.
Read chapter 4 of your textbook that deals with demand analysis. Answer the assigned questions or resolve the problems. With respect to answering questions, if you used a different source, always identify your reference (title, author, edition, page, web page, date) as a footnote. Copy and paste are not allowed. In problem solving, show step by step how you resolved the problem in order to prevent loosing points. Take into account the due date for submitting each assignment. Exercises can be submitted as an attachment.
LEARNING ACTIVITY ON DEMAND SENSITIVITY TOOLS
1. Suppose you have the following hypothetical demand or sales function.
Q X= 600- 0.6PX + 0.02I +0.4PY
and
PX = $80, (price of good X)
PY =$90, (price of good Y)
I = $24,000 (disposable per capita income)
a. Write a narrative interpretation for the coefficient of PY
b . Given that PX = $80, ceteris paribus, calculate the price elasticity of demand. How is demand classified ( elastic, inelastic etc.)
c. Given your answer in part b, if PX increases by 10%, by what percentage would sales decrease? In terms of revenues is this decision a good or bad decision.
d. Given that PY = $90, ceteris paribus, calculate the cross price elasticity of demand
e Given your answer in part d, how could we classify product X and product Y?
f. Suppose that PY decreases by 2%, bywhat percentage would sales of good X decrease?
g . Calculate the income elasticity of demand for product X when I= $24,000. How could.
h Is product X a cyclical or non cyclical good normal or inferior product? Is product X a luxury good or necessity? Explain why.
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