Calculate the advertising elasticity

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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?

Reference no: EM132200204

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