The extended demand function of good X is:

QDX = 1200 - 10 PX + 20 PY + 0.25 M where:

QDX = quantity demanded of good X

PX = Price of good X

PY = Price of related good Y (related in consumption to good X)

M = Average consumer income .

Fix the following variables:

M = 20,000

PY = 10,

Assume:

PX changes from $400 to $420

What is the value of the price elasticity of demand [Use the arc elasticity formula.]

	a.	-1.537
	b.	-1.78
	c.	-1.375
	d.	-1.872

QUESTION 15

Based on your answer in the previous question, what would happen to total revenues if the producer of the product lowers prices (with all other variables remaining constant)?

	a.	Total revenues would increase.
	b.	Total revenues would decrease
	c.	Total revenues would remain the same.
	d.	None of the other choices.