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# QD = 20,000 - 10P + 1500A + 5PX + 10 I Since R2 is considerable high, the model explains the demand quite well. We will convert every monetary unit...

I notice something....
I looked over you work briefly. Your calculation for Q is now correct ... but your elasticity measurements are incomplete. You need to finish your elasticity measurements by multiplying the derivatives by P/Q, (which is 8000/131000), A/Q, Px/Q, and I/Q respectively.
QD = 20,000 - 10P + 1500A + 5PX + 10 I Since R2 is considerable high, the model explains the demand quite well. We will convert every monetary unit into dollars for simplicity. 1. Putting the values of P, A, Px and I in the above equation, we get, Converting all price into dollars, we get, QD = 20,000 – (10×80) + (1500×64) + (5×90) + (10×5000) = 165650 Now, own price elasticity (e p ) = × = -10 Own Price elasticity (e p ) = - 10 × = - 0.0048 (approx.) Cross price elasticity (e xy ) = × = 5 Cross price elasticity (e xy ) = 5 × = 0.0027 (approx.) Income elasticity (e I ) = × = 10 Income elasticity (e I ) = 10 × = 0.3018 (approx.) Advertisement elasticity (e A ) = × = 10 Advertisement elasticity (e A ) = 1500 × = 0.5795 (approx.)
2. From the above results, we can see that the own price elasticity is - 0.0048. Thus the demand for the low-calorie microwavable food is inelastic in nature. This implies that an increase in the price of the food leads to the fall of the quantity demanded by less than proportionate amount. Income elasticity of the good calculated is 0.3018. This implies that the good selected is normal good. The cross price elasticity is 0.0027. Therefore the two goods are almost neutral goods. Finally, coming to the advertisement elasticity, we can see that the advertisement elasticity is 0.5795. Thus advertisement has an important impact on the sales of the product. 3. Since price elasticity is less than 1, total revenue will fall if price falls. Moreover the cross price elasticity of the product is almost close to zero. So, if the firm will never lower its price to increase its market share. 4. i) The demand curve s drawn below: ii) iii) At these prices there is always an excess demand. Thus market forces cannot determine the
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Please find the revised solution 2. The cross price elasticity of the product is positive... View the full answer

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