The demand curve for a product is given by QDx = 1,200 – 3Px – 0.1Pz, where Pz=$300.a) What is the own price elasticity of demand when Px = $140? Is demand elastic or inelastic at this price? What would happen to the firm’s revenue if it decided to charge a price below $140?b) What is the own price elasticity of demand when Px = $240? Is demand elastic or inelastic at this price? What would happen to the firm’s revenue if it decided to charge a price above $240?c) Are goods X and Z substitutes or complements? What is the cross-price elasticity of demand between goods X and Z when Px = $140?

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Asked Oct 1, 2019
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The demand curve for a product is given by QDx = 1,200 – 3Px – 0.1Pz, where Pz=$300.

  1. a) What is the own price elasticity of demand when Px = $140? Is demand elastic or inelastic at this price? What would happen to the firm’s revenue if it decided to charge a price below $140?
  2. b) What is the own price elasticity of demand when Px = $240? Is demand elastic or inelastic at this price? What would happen to the firm’s revenue if it decided to charge a price above $240?
  3. c) Are goods X and Z substitutes or complements? What is the cross-price elasticity of demand between goods X and Z when Px = $140?
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Expert Answer

Step 1

Own price elasticity of demand is the measure of change in the quantity demanded of a product due to the change in its price.

Formula of price elasticity of demand, ep:

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ДР,

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Step 2

The equation of demand is given to be: QDx = 1,200 – 3Px – 0.1Pz

Now, putting the value of Pz in equation,

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o 1,200 3P - 0.1(S300) 0°3 1,200 - ЗР. — 30 Q1,170 3P,

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Step 3
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a) When Px $140, Р аР, О. 140 =3x е, 1170-3(140) 140 e3x 1170-3(140) 140 e 3x 750 =0.56

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