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Suppose you estimated the following linear demand function for Nazarene University's services/products Where Q d = annual demand for university services (in thousands of units);
Suppose you estimated the following linear demand function for Nazarene University's services/products
Where Qd = annual demand for university services (in thousands of units); P = average annual price of university services (in US$); Pc = average annual price of competing university services (in US$) Y = average annual income for users of university services (in in hundreds of dollars) while A = annual advertising expenditures (in hundreds of dollars).
Required:
- Interpret the coefficients of the estimated demand equation (4 Marks)
- Assume that P = $180; Pc = $150; Y = $700 and A = $250, determine and interpret the:
- Price elasticity of demand for university services (3 Marks)
- From your answer in (i) above, what do you think will be the effect on university revenue, of lowering the price of university services from the current $130? Support your answer (3 Marks)
- Cross-price elasticity of demand (3 marks)
- Identify and explain TWO determinants of price elasticity of demand for university services (3 Marks)
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