Reference no: EM132200204
Question: Linear elasticity function. Consider the demand function for product A, where PA is price of product A and PB is price of product B. M is income and AD is advertising expenditure, both measured in thousands of dollars:
a. Is product B a substitute or a complement for product A? How can you tell
b. On the demand function at quantity QA = 250,
1. What is the level of PA?
2. At this level of PA and for PB = 50, calculate the cross price elasticity E(QAPB).
3. What, exactly, does this number mean?
At the same quantity level, QA = 250, and for advertising expenditure = 25,
1. Calculate the advertising elasticity E(QAAD).
2. What, exactly, does this number mean?
Is product A an inferior good? How can you tell?