Income elastic
Market Researchers at the Lawrence Company estimate that the demand function for a product is
Q = 75 P-2 I-2
Q is quantity demanded, P is Price, and I is Income.
Marginal cost is estimated to be $15.
a. They have their product priced at $30. Is this optimal? Why or why not.
b. What would you recommend their optimal price to be?
c. How would you classify the product in terms of it's income elasticity?