Econ301 Ch 3 Hw

Chapter 3 HW Assignment

Problem 1

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: 

Problem 2

Suppose the demand function for a firm’s product is given by ln QXd = 7 - 1.5 ln PX + 2 ln PY - 0.5 ln M + ln A where:

Px = $15

Py = $6

M = $40,000, and

A = $350

a. Determine the own price elasticity of demand, and state whether demand is elastic, inelastic, or unitary elastic.

Own price elasticity: 

Demand is: 

b. Determine the cross-price elasticity of demand between good X and good Y, and state whether these two goods are substitutes or complements.

Cross-price elasticity: 

These two goods are: 

c. Determine the income elasticity of demand, and state whether good X is a normal or inferior good.

Income elasticity: 

Good X is: 

d. Determine the own advertising elasticity of demand.

Problem 3

Suppose the own price elasticity of demand for good X is -3, its income elasticity is 1, its advertising elasticity is 2, and the cross-price elasticity of demand between it and good Y is -4....