Question

Question 4 (ILOs: B1, B3, C3, D4)

Batelco company estimates that the demand for their products is

 

Q = 500 - 3P + 2Pr + 0.1Y

Where Q = quantity, Pr is the price of its rivals, and Y is income (currently, P = $10, Pr = $20, and Y = $6000)

 

a.    What is the price of elasticity of demand for Batelco?

 

 

 

 

 

 

b.    What is the income elasticity of demand for Batelco?

 

 

 

 

 

 

 

 

c.     What is the cross-price elasticity of demand between its products and its revival?

 

 

 

 

 

 

 

 

d.    What is the implicit assumption regarding the population in the market?  

Answer 1

(a)

$Q=500-3P+2P_r+0.1Y$

$=500-3(10)+2(20)+0.1(6000)=1,110$

Price Elasticity of Demand$=b(\frac{P}{Q})$

$=-3(\frac{10}{1110})=0.03$

(b)

Income Elasticity of Demand:

$=d(\frac{Y}{Q})$

$=0.1(\frac{6000}{1110})$

$=0.54$

(c)

Cross price elasticity of demand:

$=c(\frac{P_r}{Q})$

$=2(\frac{20}{1110})=0.04$

(d)

Customers will buy from Batelco company because their products are technically superior.