A firm uses regression analysis to estimate the annual demand function for one of their products. The model of the function is Q = a + bP + cM + dP where Q is the quantity demanded measured in thousands. P is the price of the product in dollars. M is the annual income in dollars and P(r) is the price of a related good in dollars. The estimate coefficients are as follows:

Variable Coefficients

Intercept 710

P -7.5

M -0.0035

P(r) -5.4

1) Is this related good a complement or a substitute of the product for which demand was estimated? Is the firm's product a normal or an inferior product?

2) According to the model, how much should income (M) decrease to sell an additional 28,000 units?

3) Next year, you expect M = $40,000 and P9r) = $50 with this information graph the demand function estimated by the model. What is the price elasticity of demand if the firm charges a price of $30 for their product? Is this price top high or too low if the firm wants to maximize revenue?

4) Using $3 information, calculate the max profit available if the marginal cost of production is $16 and the firm has a fixed cost of $200,000?