Question
Netflix has estimated their demand function on the service that it provides as follows: Q = 212 - 9.5 p + 0.8 A + 2.8
Netflix has estimated their demand function on the service that it provides as follows:
Q = 212 - 9.5 p + 0.8 A + 2.8 Y - 1.2 p*
Where Q = monthly sales in units P = price of the service in $ A = promotional expenditure in $'000 Y = average income of the market in $'000 P* = price of 'home movies' in $
The current price of Netflix is $20, promotional expenditure is $80, average income is $15 and the price of 'home movies' is $10. Indicate whether the following statements are true or false, giving your reasons and making the necessary corrections:
1) If Netflix increases its price this will reduce the number of its customers.
2) If Netflix increases its price this will reduce its revenues.
3) If income increases by 25%, customer's expenditure on Netflix will increase by 9%.
4) If Netflix increases its price this will increase the sales of 'home movies'.
5) 'Home movies' are a substitute for Netflix.
6) A 10 % increase in price will reduce demand by 12%.
7) Current sales are over 500 units a month.
8) If Netflix decreases its price this will reduce its revenues.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started