Quiz 5_Solutions - level I P Q I p ∆ ∆ = ∆ 69 24 35 =...

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Finance 30210 Quiz #5 Name__________________________ Section_________ 1) Suppose that you have the following demand curve: I P Q 02 . ln 35 . 5 . 8 ln + = P is the current price and I is average income in thousands. Assume that average income is equal to $80,000 and that the current price is $45. a) Calculate the current price elasticity and income elasticity. ( ) 6 . 1 80 02 . 02 . ln % % 35 . ln ln % % = = = = = = = = I I I Q I Q P Q P Q I P ε ε b) Suppose that average income rises by 15%. You decide that want to raise your price by 20%. What impact will this have on your sales (percentage)? I P Q I p + = % % % ε ε ( )( ) ( )( ) % 17 15 6 . 1 20 35 . % = + = Q c) By how much could you raise (percentage) your price and maintain your current sale
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