A manufacturer has estimated that the demand for its product as
Qx = 500 - 2Px + .5I + .65Pz - 1.8Py
where Qx is the quantity demand, Px is the price, I is average annual income (currently $14,000). Pz and Py are the prices of related goods. Total costs are given by TC = 3,500,000 + 500Q
Suppose that PZ= $3000 and PY=$250 and that the firm currently charges $2500 for X.
a)(7 pts) At the current values, what is the cross point price elasticity of demand between good X and the substitute good? Interpret the elasticity. Answer given as .4875
Point price elasticity of demand between good X and the substitute Good ...
Cross Price Elasticity of Demand is emphasized.