Managerial Economics & Business Strategy 8th Edition by Michael Baye,Jeff Prince

Exercise 12

Suppose the demand function for a firm's product is given by

where
P x = $15,
P y = $6,
M = $40,000, and
A = $350.
a. Determine the own price elasticity of demand, and state whether demand is elastic, inelastic, or unitary elastic.
b. Determine the cross-price elasticity of demand between good X and good Y, and state whether these two goods are substitutes or complements.
c. Determine the income elasticity of demand, and state whether good X is a normal or inferior good.
d. Determine the own advertising elasticity of demand.