Megan's demand for brownies is Q_d= 90 -4P.

1. Calculate the price elasticity as the price moves from P₀= 20 to P₁= 15 by using the mid-point price elasticity formula (hint: this is the same formula as the arc elasticity formula). _p=

1. Given the information, we calculate the total revenue (TR) at P = 20 and P = 15 separately. When P = 20, TR =$200; when P = 15,TR= $450. Does the total revenue (TR) increase, decrease, or stay the same when the price decreases from P = 20 to P= 15? Use your calculation of the price elasticity of demand at these two different prices to explain the result in the change of total revenue.

d) When the elasticity _p> 1: if the price increases, does the total revenue increase, decrease, orremainunchanged?.

e) When the elasticity _p< 1: if the price increases, does the total revenue increase, decrease, orremainunchanged?.

II Cross-price elasticity of Demand:Megan substitutes brownies for cheesecake sometimes, but Megan always drinks coffee when she has a piece ofbrownie.

1. The price of cheesecake decreases by 10%. As a result, Megan's demand for brownies decreases from 11 brownies to 9 brownies. Given the information, the cross- price elasticity of demand for Megan for these two goods is ^brownie_pcheesecake=2. From Megan's perspective, is cheesecake a substitute or a complement good forbrownies? Why? Use the concept of cross-price elasticity of demand to explain youranswer.

1. The price of coffee increases by 20%. As a result, Megan's demand for brownies decreases by 15%. What is the cross-price elasticity of demand for Megan for these two goods? ^brownie_pcoffee= - 0.75. From Megan's perspective, is coffee a substitute or a complement goodforbrownies? Why?Use the concept of cross-price elasticity of demand to explain youranswer.

III Income elasticity of Demand: Megan got a raise at work, and her income increases by 25%. As a result, her demand for brownies increases by 15%. In the meanwhile, Megan's demand for Cheetos decreases by10%.

1. Given the information, Megan's income elasticity of demandforbrownies is 0.6. What does this income elasticity tell us about Megan's valuation of brownies (are brownies normal or inferiorgoods)?

1. What is Megan's income elasticity of demandforCheetos?What does this income elasticity tell us about Megan's valuation of Cheetos (is Cheetos a normal or an inferiorgood)?