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# Answer to Question #50652 in Microeconomics for naeem

Question #50652
the demand equation is estimated to be 50 - 3p + 2po where po is the price of other good. assume the average value of P is $3 and the average value of po is$6.
a. what is the price elasticity at the average values of P and Po? how should the price of the good can changed to increase total revenues?
b. what is the cross elasticity at the average values of P and Po? what is the relationship between the two goods?
c. if equation is correctly estimated is good inferior a necessity or a luxury? Explain.

Qd = 50 - 3P + 2Po, P = $3, Po =$6.
a. The price elasticity at the average values of P and Po is: Edp= -3 and Edpo = -2, so the demand for both goods is elastic. The price of the&nbsp;good can be decreased in this case to increase total revenues.
b. The cross elasticity at the average values of P and Po is zero, because these two goods are neither complements, nor substitutes.
c. To calculate if the good is inferior, a necessity or a luxury, we need to know the change in income of the consumer.

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