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Suppose that the demand for a good x1 sold by a public agency is given by x 1 (p1) = 17 2.3p1 + 0.3p2 where
Suppose that the demand for a good x1 sold by a public agency is given by x 1 (p1) = 17 2.3p1 + 0.3p2 where p1 is the own-price and p2 is the price of some other good. Suppose that we currently observe p1 = 4.5 and p2 = 5.0. The public agency is considering raising the price of x1 slightly. If the agency is interested only in the impact of the price increase on its revenues, would you advise it to raise its price of x1? (Hint: use elasticities).
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