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Question 3 (25 marks} The Deiibest Food Company is introducing a new product called the Product X. The demand function for this new product is
Question 3 (25 marks} The Deiibest Food Company is introducing a new product called the "Product X". The demand function for this new product is given as: Dd = ?5{} 2.5F'x + {1.05M 2P~r where OH is quantity of X demanded, P1: is price of X {RM}, M is {average} consumer income {RM} and P; is price of related good Y {RM}. 3} h} d} interpret the slope parameter for income. ls product X normal or inferior? [4 marks} Suppose that the consumer income and price of Y are RMdBJli} and RM12.5EI. respectively. Derive the demand function for product X. [4 marks] Now, suppose that the supply function is given as Q; = ED{} + 2.5P'x. I|rl'l-lhat are the equilibrium price and quantity in this market? [5 marks] What are the price elasticities of demand at the equilibrium? At this point on the demand. is demand elastic. inelastic or unitary elastic? Should the company increase or decrease the price of X in order to increase the total revenue? [6 marks] Find the level of output which total revenue will be maximized? [E marks]
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