The demand for Wanderlust Travel Services (X) is estimated to be:
QX = 22,000 - 2.5PX + 4PY - M + 1.5AX
where AX represents the amount of advertising spent on X, M is income per capita, and the other variables have their usual interpretations.
Suppose that the price of good X is $450, good Y sells for $40, the company utilizes 3000 units of advertising, and consumer income is $20,000.
a. Calculate the elasticity of demand for good X with respect to the price of X, the price of Y, income, and advertising.
c. Calculate consumer surplus at the profit-maximizing price if the marginal cost is $264.