Question
The demand for Widgets (Q X ) is a function of the price of widgets (P X ), the price of woozles (P Y ),
The demand for Widgets (QX) is a function of the price of widgets (PX), the price of woozles (PY), and per capita
income (I):
QX= 1950 - 10 PX+ 5 PY- 0.1I
Currently, PX= 25, PY= 10, and I = 15,000.
(a)Calculate the elasticity of demand for widgets with respect to its own price, the price of woozles, and income.(6)
(b)Over what range of prices is the demand for widgets elastic?(2)
(c)If the cost per widget is 10 and the manufacturer behaves as a monopolist, how many widgets will be sold and at what price.(2)
(d)By how much must the price of widgets change if there is a 1% decrease in per capita income and the goal is to
keep QXconstant.(3)
(e)What happens to the elasticity of demand for widgets if the price of woozles doubles?(2)
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