Demand function
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Given the following demand function:
Q = 2.0 P-1.33 Y2.0 A0.50
Where
Q = quantity demanded (thousands of units)
P = price ($/unit)
Y = disposable income per capita ($ thousand)
A = advertising expenditures ($ thousand)
Determine the following when P = $2/unit, Y = $8 (i.e., $8000), and A = $25 (i.e., $25,000)
(a) Price elasticity of demand
(b) The approximate percentage increase in demand if disposable income percentage increases by 3%.
(c) The approximate percentage increase in demand if advertising expenditures are increased by 5 percent.
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Solution Preview
I will assume that your demand function looks like this (if not contact me)
Q = 2(P^1.33)(Y^2)(A^0.5)
first we plug in Y = 8 and A = 25
Q = 640(P^1.33)
dQ/dP = ...
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