Managerial Economics & Business Strategy 7th Edition by Michael Baye, Stanley Brue, David MacPherson

Exercise 2

The demand curve for a product is given by Q d x = 1,000 - 2 P x +.02 P z ,
where P z = $400.
a. What is the own price elasticity of demand when P x = $154 Is demand elastic or inelastic at this price What would happen to the firm's revenue if it decided to charge a price below $154
b. What is the own price elasticity of demand when P x = $354 Is demand elastic or inelastic at this price What would happen to the firm's revenue if it decided to charge a price above $354
c. What is the cross-price elasticity of demand between good X and good Z when P x = $154 Are goods X and Z substitutes or complements