Managerial Economics 2nd Edition by William Boyes

Exercise 9

A firm has estimated the following demand function for its product:
Q = 10 −2 P + 0.20 I + 2 A
where Q is quantity demanded per month in thousands, P is product price, I is an index of consumer income, and A is advertising expenditures per month in thousands. Assume that P = $5, I = 50, and A = 10.
Based on this information, select the correct values for: quantity demanded; price elasticity of demand; income elasticity of demand; and advertising elasticity. (Use the point formulas to complete the required elasticity calculations).
Hint Quantity demanded: Substitute the values given for the variables into the demand equation. Then calculate elasticities. Price elasticity: Use the point elasticity formula:
( dQ / dP )( P / Q )Income elasticity: Use the point formula:
( dQ / dI )( I / Q )Advertising elasticity: Use the point formula:
( dQ / dA )( A / Q )