Question #2013198: Elasticity Theory


Question: Below is a mathematical demand function for new Cadillac’s sold per year for a dealer.

\[{{Q}_{C}}=200-0.01{{P}_{C}}+0.005{{P}_{L}}-10{{P}_{G}}+0.01Y+0.003A\] where:

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?

Solution: The solution consists of 221 words (2 pages)
Deliverables: Word Document

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