Calculating Price, Income and Advertising Elasticity
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A firm has estimated the following demand function for its product:
Q = 8 - 2P + 0.10I + A
Q is quantity demanded per month in thousands, P is product price, I is an index of consumer income, and A is advertising expenditures per month in thousands.
Assume P=$10, I=100, and A=20.
Based on this information, calculate values for:
a) quantity demanded, and price elasticity of demand
b) income elasticity of demand, and advertising elasticity
(Use the point formulas to complete the required elasticity calculations).
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Solution Summary
Solution describes the steps for calculating price, income and advertising elasticity of demand.
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Solution
Q=8-2P+0.1I+A
Q=8-2*10+0.1*100+20=18
a)
Qty demanded = ...
Education
- BEng (Hons) , Birla Institute of Technology and Science, India
- MSc (Hons) , Birla Institute of Technology and Science, India
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