Please help me with this exercise. Please read carefully and follow all the instructions and draw the curves. Many thanks!

This exercise is essentially a short written 'paper' in which there must be followings but I am only asking you to help me and show me how to do the steps regarding the curve drawing and computation( the Underlined parts). I have already done the important parts where i have done the questionnare about the small market. An introduction that explains the reasons behind the choice of the goods in the consumers' basket; A description of the preferences obtained with some comments or evaluations of results and the representation of the indifference curves obtained with the interpolation procedure (please attach also the excel file with the answers to the questionnaire); The representation of the demands of the individual consumers and the aggregate demand; The computation of elasticities; Some general comments and conclusions.

The goal is to estimate the own and cross price elasticity of two goods to characterize the demand of a simple market (made of two goods) you are interested in. You can imagine to be a consulting firm doing market analysis, or the marketing department of a company that is considering how to deal with the competition.

I chose an ideal small market made of only two goods. Let's consider the market for smartphones and smartphone apps. Smartphones and apps are part of the same market and are linked by a relationship of complementarity. Smartphones serve as the platform on which various apps are used, and the availability and functionality of apps can significantly impact the desirability of a particular smartphone. This market is interesting because the demand for smartphones can be influenced by the availability and quality of apps, making it a great example of complementarity in the consumer electronics industry.

You can think of two potential substitutes

Below is the explanation in the steps to follow to get the own and cross price elasticity of the two goods. You start by estimating the individual preferences over the two goods of a sample of consumers through interviews. ( I have done this part, you can see the questionnare and answers below) Then, you derive the individual demand for the two goods as a function of the two prices, and aggregate them to the market demand. Finally, you can compute the own and cross elasticity of demand and verify whether your starting assumption about the complementarity or substitutability of the goods is confirmed. (Please help me with these)

1. Estimate consumer preferences

I made a short questionnaire with answers from 5 customers. The questions have the goal of estimating the indifference curves for each consumer. The goal of the questionnaire is to get at least three points on the same indifference curve to plot it in the two-variable graph. Be careful about the structure of the questions: guide the consumer to answer according to his/her perception of indifference (constant satisfaction/happiness level). Remember that to plot a curve (not necessarily a line) you need at least three points; the more points you have, the more you can be precise.

The Questions:

Q1. How many hours do you spend on your smartphone every day?

Q2. How many different smartphone apps do you regularly use on your smartphone?

Q3. How much money are you willing to allocate to the purchase of a new smartphone and for purchasing apps per month?

Q4. Imagine you have to reduce your daily smartphone usage by one hour. How many additional apps would you need to download and use to maintain your satisfaction level with your smartphone experience?

Q5. Imagine you start using your smartphone for two hours more every day. Would you consider downloading and using more apps, or would you stick to the same set of apps?

Sample Answers:

Consumer 1:

• Q1: 4 hours
• Q2: 10 apps
• Q3: $50 per month
• Q4: I'd need to download and use at least 3 additional apps.
• Q5: I'd probably download a couple of new apps to make the extended usage more enjoyable.

Consumer 2:

• Q1: 2 hours
• Q2: 5 apps
• Q3: $20 per month
• Q4: I might not need to download more apps; I'm happy with the ones I have.
• Q5: If I increase my smartphone usage, I would still stick to the same apps.

Consumer 3:

• Q1: 6 hours
• Q2: 15 apps
• Q3: $100 per month
• Q4: I would need to download 5 more apps to compensate for the reduced usage.
• Q5: I would definitely download more apps if I use my smartphone for 2 hours longer.

Consumer 4:

• Q1: 3 hours
• Q2: 8 apps
• Q3: $30 per month
• Q4: I'd consider downloading 2 or 3 additional apps to maintain my satisfaction.
• Q5: I would stick to the same apps even if I use my smartphone for 2 hours more.

Consumer 5:

• Q1: 5 hours
• Q2: 12 apps
• Q3: $70 per month
• Q4: I'd need to download and use at least 4 more apps.
• Q5: I would download a few more apps if I increase my smartphone usage by 2 hours.

These answers can help you understand the preferences of different consumers regarding their smartphone usage and app consumption. By using this data please show me how to plot indifference curves for each consumer, showing the trade-offs between smartphone usage and app consumption.

For each consumer separately, use the points obtained to fit the indifference curve(Please draw the curve). Use an interpolation tool of your choice (e.g. Wolfram Alpha) and find the shape that you think is best suited (you

should probably avoid the linear and go with quadratic, cubic or exponential). >>comment from the teacher

2. Derive the aggregate demand

Using the indifference curve estimated and the income declared by the consumer in the survey, find for each consumer his/her demand as a function of prices for the two goods separately through the constrained utility maximization problem. Pay attention to the optimality condition: since you don't have the utility function but the indifference curve expression, you can directly get the Marginal Rate of Substitution through the total derivative of the indifference curve. Sum up the individual DIRECT demands (the quantities, not the prices!) for each good to get the two aggregate demand functions D1(p1, p2) and D2(p1, p2). (Please show me how to do these steps )

3. Compute the own and cross elasticities

Now that you have D1(p1, p2) and D2(p1, p2), you can compute the elasticity of demand for each good with respect to its own price as D1,p1 =D1(p1, p2)/p1*p1/D1(p1, p2) , D2,p2 =D2(p1, p2)/p2*p2/D2(p1, p2)

and the cross elasticity as D1,p2 =D1(p1, p2)/p2*p2/D1(p1, p2) , D2,p1 =D2(p1, p2)/p1*p1/D2(p1, p2) (Please show me the computations)

3. Compute the own and cross elasticities . Now that you have Di(P1, P2) and D2(P1, P2), you can compute the elasticity of demand for each good with respect to its own price as aDI(P1, P2) P1 aD2(P1, P2) P2 ED1,P1 = ,ED2, P2 = ap1 Di(P1, P2) ap2 D2(P1, P2) and the cross elasticity as aDI(P1, P2) P2 aD2(P1, P2) P1 ED1,P2 = ap2 DI(P1, P2) ED 2 , P1 ap1 D2(P1, P2) . Comment the four results considering both the sign and the magnitude. . Draw your conclusions on the relationship between the two goods, also with reference to your expectations before the experiment