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Calculating the Elasticity Coefficients

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:

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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