Calculate the advertising elasticity

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Reference no: EM132200204

Question: Linear elasticity function. Consider the demand function for product A, where P_A is price of product A and P_B 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 Q_A = 250,

1. What is the level of P_A?

2. At this level of P_A and for P_B = 50, calculate the cross price elasticity E(Q_AP_B).

3. What, exactly, does this number mean?

At the same quantity level, Q_A = 250, and for advertising expenditure = 25,

1. Calculate the advertising elasticity E(Q_AAD).

2. What, exactly, does this number mean?

Is product A an inferior good? How can you tell?

Reference no: EM132200204

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