hw11a - cross-price elasticity for substitute goods. Do the...

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Homework 11 – ISyE 4803B 1. Tech Pharmaceutical Company believes that sales (demand) depends on price as well as selling expense (which includes advertising). They also believe that demand is linear. Given the data below (note, the current price is $10, so the price in the table is amount below current price), fit a regression line and interpret the results: Sales Sales Expense Price (in millions) (in $millions) (less $10) 6 2 0 4 1 1 16 8 2 10 5 3 12 6 4 8 4 5 12 7 6 16 9 7 14 8 8 2. Repeat problem 1 assuming constant elasticity model for demand. Assuming there is no income elasticity and no complimentary goods, estimate the aggregate
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Unformatted text preview: cross-price elasticity for substitute goods. Do the estimates make sense economically? Why or why not? 3. Suppose the demand function is: A P P Q Y X X 5 . 1 6 . 1 1 . 2 104 + + = where Px is price of X, Py, is the price of a substitute good Y and A is the dollars spent of advertising. Answer the following: a. Find the cross-price elasticity b. Derive a formula for income elasticity (assuming demand is homogeneous of degree 0, and there are no other effects than those listed)....
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