Question
Dart Moving Company Pvt Limited has estimated that the demand for its services is given by Qd = 1,000 - 0.2 P + 0.5 Py
Dart Moving Company Pvt Limited has estimated that the demand for its services is given by Qd = 1,000 - 0.2 P + 0.5 Py + 0.04 Y + 0.01 A, where Qd is the quantity demanded at price P, Py is the price of providing the service by a group of specialized workers, Y is consumer income and A is the advertising expenditure of the firm. Currently we have the following data, P = 100, Py = 120, Y = 10,000 and A = 6,000. a. Calculate the price elasticity of demand at the given point. Should Dart Moving Company consider matching their price, P to Py to increases total revenue? Explain your answer using appropriate graphs. b. Also calculate the advertising elasticity of demand. How can Dart Moving Company use this information to decide on advertising expenditure? Explain. Is it likely that advertising expenditure can impact the cross price elasticity of demand? Explain.
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