Assume that demand curve for a product is given by:
Q(d/x) = 1200 – 3Px – 0.1Pz
Where Pz = $300
(a) What is the own price elasticity of demand when PX = $140? Use the point elasticity formula. Please show all calculations.
(b) Is this a necessary or a luxury good? Please explain.
(c) What will happen to the firm’s revenue if it decided to charge a price below $140? Please explain and show all calculations.
(d) What is the cross price elasticity between Good X and Good Z when PX = $140 and
PZ= $300? Are goods X and Z substitutes or complements? Please explain and show all calculations.
