Answer to Question #241919 in Macroeconomics for Maxano

Question

Netflix has estimated the demand for its service to be given by the following function: Q=938P^(-1.2) A^2.5 Y^1.6 〖 Po〗^(-1.4) Where: Q = monthly sales in units P = price of the service in N$ A = promotional expenditure in N$’000 Y = average income of the market in N$’000 Po = price of ‘home movies’ in N$ The current price of Netflix is N$60, promotional expenditure is N$120,000, average income is N$28,000, and the price of ‘home movies’ is N$45.

Answer 1

 If Netflix increases its price this will reduce the number of its customers.

If Netflix increases its price this will reduce its revenues.