Managerial Economics Question Set
The demand function for Good X is defined as Qx = 75-2Px - 1.5Py, where Py is the price of Good Y. Calculate the price elasticity of demand using the point formula for Px = 20 and Py = 10. Determine whether demand is elastic, inelastic, or unit elastic with respect to its own price and whether Good Y is a substitute or a complement with respect to Good X.
Py
Substitute Px = 20 and Py = 10:
To find PED, another variable point is needed:
Increase Px by 15% (23),
6/20 x 100% = -30%
PED = -30/15 = -2
Because PED < -1, the demand is price elastic. (A rise in the price by $1 results in a reduction...
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