Please show the detail work for each question and the bonus question need to be answered.

Question 1 - Elasticity of Demand: Sometimes firms conduct experiments where they temporarily change prices (this may be done with selective coupons and other discounting methods) to see how the consumer responds to a price change. Consider the case of Carl's Jr, where they sell Big Burgers with coupons. Normally, Big Burgers are sold for 1.99. On a typical week suppose that they sell 800 Big Burgers. They then offer a discount on Big Burgers and sell one for $0.99 with coupon. If they sell 1200 of them use this information to answer the following questions. (i) Given the price and quantity information, calculate the Elasticity of Demand for Big Burgers. (ii) What type of good/service is this (inelastic, elastic, etc.)? Explain. (iii) Interpret your elasticity calculation. Bonus: Part (iv) and (v) are considered bonus. (iv) If we operate under the assumption of ceteris paribus, what is the best linear representation of the demand faced by the firm [please provide the equation for the demand in terms of Q = f(P)]. Hint: This is just solving for the equation of the line...so solve for slope and intercept. Recall that to get the equation of a line we can choose one point and note: (Y - Y1) = M(X - X1) in this case your point would be (X1, Y1) (P,Q) where M = Q P (v) If we continue to operate under the assumption that the demand is linear, what prediction can you make about the firm's level of sales at the price of $1.50? Use your solution to predict this. Question 2 - Elasticity Using Linear Demand: Assume that the demand for product X is represented by the following equation: QDX 1000 10PX 5PY 2PZ i) Calculate the elasticity of demand if Px = 20 Py = 30 and Pz = 50. ii) Based on your calculation what type of a G/S is it? Explain. iii) Calculate the cross price elasticity of demand for Good Z and Good X only. iv) Interpret the value of the cross price elasticity of demand and determine what type of G/S good Z is relative to good X. Explain. Page 1 Question 3 Budget Line: Over the past decade medical costs have increased more rapidly than other prices. In order to illustrate how rising medical costs have affected consumer alternatives, let X represent the quantity of medical services, and let Y represent the quantity of other goods. Furthermore, let income (M) be measured in hundreds of dollars, the price of medical services and other goods in terms of dollars per minute, with M=1000, Px=20, and Py=5. Note: In general we may note that w Px*X + Py*Y use M instead of W for the purposes of this question. i. Graph the budget line, and determine the market rate of substitution. Make sure to Illustrate the budget set as well as what is unaffordable. Also note the maximum amounts of medical G/S and other G/S you can purchase given wealth and prices. ii. Show in your graph what happens to the budget constraint if Px increases to $40 (i.e. the costs of medical services increase). iii. What is the meaning of the slope of the two budget constraints? Explain using the values you calculated. Page 2