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# Calculating the Elasticity Coefficients

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The demand curve for a product is given by QXd = 1,200 - 3PX - 0.1PZ where Pz = \$300.

a. What is the own price elasticity of demand when Px = \$140? Is demand elastic or inelastic at this price? What would happen to the firm's revenue if it decided to charge a price below \$140?

Instruction: Round your response to 2 decimal places.

Own price elasticity:

Demand is:

If the firm prices below \$140, revenue will:

b. What is the own price elasticity of demand when Px = \$240? Is demand elastic or inelastic at this price? What would happen to the firm's revenue if it decided to charge a price above \$240?

Instruction: Round your response to 1 decimal place.

Own price elasticity:

Demand is:

If the firm prices above \$240, revenue will:

c. What is the cross-price elasticity of demand between good X and good Z when Px = \$140? Are goods X and Z substitutes or complements?
Instruction: Round your response to 2 decimal places.

Cross-price elasticity:

Goods X and Z are:

https://brainmass.com/economics/pricing-output-decisions/585150

#### Solution Preview

The demand curve for a product is given by QXd = 1,200 - 3PX - 0.1PZ where Pz = \$300.

a. What is the own price elasticity of demand when Px = \$140? Is demand elastic or inelastic at this price? What would happen to the firm's revenue if it decided to charge a price below \$140?

QXd=1200-3PX-0.1PZ
Put Pz=300
QXd=1200-3PX-0.1*300=1170-3PX

Differentiate with respect to PX we get
d(QXd)/dPX=-3

Now calculate QXd at Px=\$140
QXd=1170-3PX=1170-3*140=750

Own price elasticity of demand=Ep=d(QXd)/dPX*(Px/QXD)=-3*(140/750) =-0.56

Own ...

#### Solution Summary

Solution depicts the steps to estimate the elasticity coefficients in the given case.

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