# Economics - Demand curve

Suppose a firm's demand curve is given by P=120-0.5Q. Find the (value of) price elasticity of demand (point elasticity) for the demand curve when the price is $100. Is demand elastic or inelastic?

Once it's determined to be elastic or inelastic, how do you come to that conclusion?

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#### Solution Preview

Q = (120 - P)/0.5 = 240 - 2P

dQ/dP = -2

Price Elasticity of Demand = ...

#### Solution Summary

Neat and step-by-step soltuion is provided.

Demand Elasticity

1. Xerox Corporation develops, manufacturers, and services document equipment and software solutions worldwide. Assume the company offered $75 off the $1,475 regular price on the Phaser 6360, a durable high-speed color copier, and Internet sales jumped from 700 units to 800 units per week.

A. Estimate the color copier demand curve, assuming that it is linear.

B. If marginal costs per unit are $650, calculate the profit-maximizing price-output combination.

2. The demand curve for a product is given by Qx = 1,000 - 2(Px) + .02(Pz), where Pz = $400.

A. What is the own price elasticity of demand when Px = $154? Is demand elastic or inelastic at this price? What would happen to the firm's revenue if it decided to charge a price below $154?

B. What is the own price elasticity of demand when Px = $354? Is demand elastic or inelastic at this price? What would happen to the firm's revenue if it decided to charge a price above $354?

C. What is the cross-price elasticity of demand between good X and good Z when Px = $154? Are goods X and Z substitutes or complements?

3. Suppose the own price elasticity of demand for good X is -2, its income elasticity is 3, its advertising elasticity is 4, and the cross-price elasticity of demand between it and good Y is -6. Determine how much consumption of this good will change if:

A. The price of good X increases by 5 percent.

B. The price of good Y increases by 10 percent.

C. Advertising decreases by 2 percent.

D. Income falls by 3 percent.

4. For the first time in two years, Big G raised cereal prices by 2 percent. If the volume of cereal sold by Big G dropped by 3 percent, what can you infer about the own price elasticity of demand for Big G cereal?

5. This year was prosperous for Starbucks Coffee. Revenues increased 9 percent. Suppose management attributes this revenue growth to a 5 percent increase in the quantity of coffee sold. If Starbucks' marketing department estimates the income elasticity of demand for its coffee to be 1.75, how will looming fears of a recession (expected to decrease consumers' incomes by 4 percent) impact the quantity of coffee ]Starbucks expects to sell?

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