The demand curve for a product is given by the Qdx = 1,000 - 2Px +.02Pz where Pz = $400. (Hint: If you're not comfortable with the calculus alternatives, determine Q at the given prices, then again with a 1% increase in price. Then figure percentage change in Q over the percentage change in P, %?Q/%?P).
1. Calculate the own price elasticity of demand when the Px = $154? Is the demand elastic or inelastic? Explain what would happen to the firm's revenue if it decided to charge a price below $154?
2. Determine the own price elasticity of demand when Px = $354? Is the demand elastic or inelastic? Discuss what would happen to the firm's revenue if it decided to charge a price below $354?
3. Determine the cross-price elasticity of demand among good X and good Z when the Px = $154? Are good X and good Z substitutes are complements?