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# HWK2 - -0.75 =-3.6%dP%dP = 4.8 To maintain the amount of...

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ECON - 2010 February 11, 2010 HWK #2 //*************************************************** lnKWH = -0.402 + 1.20(lnIncome) - 0.75*(lnPrice) Income = Y_0 = 45 Price = P_0 = 0.1 The coefficient of lnIncome is the income elasticity. income_elasticity = (%dQ/%dY) 1.2 = (%dQ/-3) %dQ = -3.6 The coefficient of lnPrice is the own price elasticity. elasticity = (%dQ/%dP)
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Unformatted text preview: -0.75 = (-3.6/%dP) %dP = 4.8 To maintain the amount of KWH demanded, the price per kilowatt hour must decrease by 4.8% //*************************************************** EXTRA CREDIT eta = elasticity = -0.75 P = 0.1 MR = P*(1 + 1/eta) MR = 0.1*(1 + 1/-0.75) MR = -0.0333 Marginal revenue = -\$0.0333...
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