Question

Qx = 1600 - 10Px + 4Py + 1500A + 2(In)

(523) (2.0) (1.7) (500) (1.2)

R squared = 0.68

F = 35.3

Standard error of estimate = 565

Where Qx = quantity demand for iphoneX

Px = price of iphoneX (RM) = 7000

Py = price of related good (RM) = 8000

A = advertising expenditure in million (RM) = 54

(In) = income (RM) = 4000

1) should this company consider discounting its price in order to increase total revenue?

2)if income increase by 10% how would this affect the demand for iPhoneX?

Answer 1

Should this company consider discounting its price in order to increase total revenue?

$\varDelta Q_{x} / \varDelta P_{x} = - 10$

A unit increase in the price of the iphoneX would lead to a decrease in the demand of the iphoneX by 10 units. Discounting the price would lead to increase in the demand of iphoneX and hence the company would be in a position to sell more iphoneX units due to increase in demand and hence enabling the company to increase total revenue.

If income increase by 10% how would this affect the demand for iPhoneX?

$\varDelta Q_{x} / \varDelta ln = 2$

Unit increase in income by 1RM = Increase in $Q_{x} by 2$

An in increase in the income by 10% would lead to an increase in the quantity demanded of iphoneX by 20% (2*10%). An increase in the income by 10% increases the purchasing ability of consumers making the iphoneX affordable. Ideally, this motivates more consumers to purchase the iphoneX since they can afford given their increased incomes.