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Elastic, Inelasticity, Unitary Elastic Problem

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The Demand for Jet Air Travel Services and Hotels (X) is estimated to be:

Q (x) = 22,000 - 2.5 (Px) + 4 (Py) - 1 (M) + 1.5(Ax) where

Ax represents the the amount of advertising spent on X and other variables have their usual interpretations. Suppose the price of good X is $450.00, good Y sells for $40.00, the company utilizes 3,000 units of advertising, and consumer income is $20,000.00

1. Calculate the own price elasticity of demand at these values of prices, income, and advertising.
2. Is demand elastic, inelastic, or unitary elastic? Why?
3. How will your answers to parts a and b change if the price of Y increases to $50.00?

Thanks!

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Solution Summary

This solution provides the step-by-step calculations for elastic, inelasticity, and unitary elastic problems.

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Q (x) = 22,000 - 2.5 (Px) + 4 (Py) - 1 (M) + 1.5(Ax) where
First calculate dQ/dPx
dQ/dPx=-2.5
Price elasticity = dQ/dP * P/Q
Now at these values ...

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