Assume SeatComfy Inc. estimates the demand for its table chairs to be Q = 5,000 - 25P + 4I +10P_A - 15 P_T, where P = the price of SeatComfy's chairs; P_A = average price of competitors' chairs; P_T = price of tables; and I = average income of SeatComfy's customers. Which of the following is true? A) SeatComfy's chairs are inferior goods; SeatComfy's chairs and tables are complements, while SeatComfy's and competitors' chairs are substitutes. SeatComfy's sales decrease by 250 units for each $10 increase in their own price. B) SeatComfy's chairs are normal goods; SeatComfy's and competitors' chairs are substitutes, while SeatComfy's sales are not affected by the pricing decisions of tables' producers. SeatComfy's sales increase by 50% if the price decreases by $2. C) SeatComfy's chairs are a normal good; SeatComfy's chairs and tables are complements, while SeatComfy's and competitors' chairs are substitutes. SeatComfy's sales decrease by 25 units for each dollar increase in price. D) SeatComfy's chairs are a normal good; SeatComfy's chairs and tables are complements, while SeatComfy's and competitors' chairs are substitutes. SeatComfy's sales decrease by 250 units for each dollar increase in price.

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Quizplus · Accepted Answer

The coefficient for I is positive, indicating that SeatComfy's chairs are a normal good. The coefficients for P_A and P_T are negative, indicating that SeatComfy's chairs and competitors' chairs are substitutes, and SeatComfy's chairs and tables are complements. The coefficient for P is -25, indicating that SeatComfy's sales decrease by 25 units for each dollar increase in price.