Question: Question 1:

A firm has established the following demand function for its product:

Q = 58 – 2 P + 0.10 I + 15 A

Where Q is quantity demanded per month in thousands, P is product price, I is an index of consumer income, and A is advertising expenditures per month in thousands. Assume that P = $10, I = 120, and A = 10. Use the point formulas to complete the elasticity calculations indicated below.

(i) Calculate quantity demanded.

(iI) Calculate the advertising elasticity of demand and explain its meaning