Question
The demand and supply functions of Beauty Ltd are as follows: Qdx= 1200 - 3Px - 3.5 Y + 2A + 6Pz and Qs= 200
The demand and supply functions of Beauty Ltd are as follows: Qdx= 1200 - 3Px - 3.5 Y + 2A + 6Pz and Qs= 200 + Px where Qdx is the quantity demanded of the firm's product (x) (in kgs), Qsx is the quantity supplied of the firm's product (x) (in kgs). Px is the price of the firm's product (in Rs), Y represents income (in Rs), A is the firm's advertising expenditure (in Rs) and Pz is the price (in Rs) of a related product (Z). i) If Y =1000, A= 800 and Pz = 200, write down the firm's simplified demand function? (2 marks) ii) ii) Calculate the equilibrium price and quantity. (4 marks) iii) Are goods X and Z substitutes or complements? Justify your answer. (2 marks) iv) Is good X a normal or an inferior good? Justify your answer. (2 marks) v) Calculate the price elasticity of demand at the equilibrium price.
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