The following demand function for Kirgit Motors product was estimated.
Qda = -0.75Pa+ 1.5Pb+ 0.90Y + 0.02 A + 40C + e
Where:
Qdais Annual demand for Kirgit Motors' products.
Pais average annual price for the Kirgit Motor's products in Kenya shillings
Pbis average annual price for the competing firms' products.
Yis income per capita
Cis index for credit availability.
Ais annual advertising expenditure.
Assume that the independent variables take the following values:
Pa= Kshs.1,333,000;Pb= Ksh.1,050,000;Y = Kshs.20,000; C=1.0; and A= Kshs.1,500,000
Required:
i) Interpret the results of the estimated demand.
ii) Compute point price elasticity of demand for Kirgit products.
iii) Calculate the point cross-elasticity of demand.
iv) At the current price level, what effect would an increase in price of the firm's products have on total revenue?Support your answer.
v) Would it be viable for the firm to continue incurring more expenses on advertisement?
Support your answer.