Question: The statistics department of an appliance manufacturer has estimated that the demand function for their brand (brand X) automatic washer (number purchased annually) is as follows:

Q _x = 197,000 -100P _x + 50P _y + 0.1Y+ 0.02A + 10,000P _L

where

P _x = the price of the company's washer

Py = the price of a major competitor's washer

Y = the average household income

A = the annual dollars spent on advertising

P _L = the cost of doing one load of wash in a self-service laundry.

1. If P _y = $300, Y = $10,000, A = $200,000, and P _L = $0.30, find the price elasticity of demand between P _x = $350 and P _x = $400. (When P _x = $400, with the values of the other variables as given above, Qx = 180,000.)
2. Is e _p elastic, inelastic, or unitary elastic? Why? If you decrease price, does total revenue increase, decrease, or not change?
3. Find the income elasticity of demand for Q _x , given P _x = $400, and the other variables are as given in part (a). Interpret your answer, i.e., what does it say, if anything, about the demand for brand X washers?

Price: $2.99

Solution: The downloadable solution consists of 2 pages
Deliverable: Word Document