Question: Below is a mathematical demand function for new Cadillac’s sold per year for a dealer.
PC = the average price of Cadillac’s
PL = the average price of Lincoln Continentals
PG = the price of gasoline
Y = the average family income
A = dollars spent annually on advertising.
(a) Find the point price elasticity of demand if PC = $11,000, PL = $10,000, PG = $0.60
Y= $6,000, and A = $2,000.
(b) Is the price elasticity of demand elastic, unitary elastic, or inelastic? Why?
(c) Find the arc cross elasticity of demand for Cadillac’s and Continentals between PL = $10,000 and PL = $9,000. [All other figures except Q, remain the same as part (a)
(d) Are Cadillac’s and Lincolns substitutes or complements? Why?
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