Florid Technologies Is a Manufacturer of Exercise Machines

Essay

Florid Technologies is a manufacturer of exercise machines. Their best selling device, a mechanical swimming simulator, has been on the market for several years. The demand function for the simulator was estimated in log-linear form using time-series data. The results are presented below.
Q_X = 110 P_X^-0.20 P_Y^0.30 P_Z^-0.10 A^0.10 I^0.01
The number of simulators sold per week (Q_X) was found to depend on the price charged for a simulator (P_X), the average monthly cost of membership at a health club (P_Y), the cost of an accessory package designed for use with the simulator (P_Z), monthly advertising expenditures (A) in thousands, and average annual household income (I) in thousands.
(i) If P_X = $595, P_Y = $45, P_Z = $99.85, A = $11,000, and I = $44,000, how many simulators can Florid Industries expect to sell in a week?
(ii) Interpret the price elasticity, cross-price elasticities, advertising elasticity, and income elasticity of demand for simulators.
(iii) The president of Florid Technologies plans to increase the simulator's price by 10% and to increase advertising expenditures by 5%. By what percentage can sales of simulators be expected to change? Will total revenue increase, decrease, or remain the same? Explain your answer.
(iv) If the price of a simulator is increased by 10% and the cost of an accessory package is reduced by 20%, what effect will this have on simulator sales?