Cold beer is sold by roving vendors at Safeco Field, home of the Seattle Mariners. The only competition to this service is beer that can be bought at the kiosks around the stadium. The demand functions has been estimated, using least squares regression, to be Qd = 20,000 – 20,000P + 7,500Pk + 0.8M + 500T where “P” is the average price of the beer sold by the roving vendors, Pk is the average price of beer sold by nearby kiosks, M is disposable income per household, and T is the high temperature of the day.
a. Determine the demand curve for beer sold by the vendors, with Q expressed as a function of P, when the default values of the other independent variables are: Pk = $4, M = $62,500, and T = 80 degrees.
b. Estimate the number of beers sold if you charge $5 per beer.
c. Estimate price elasticity of demand, and cross price elasticity of demand at those values given in/calculated from a and b.