Question
The following demand function has been estimated for Fantasy Pinball machines: QD = 3,500 - 40P + 17.5Px + 670U + 9A + 6,500N Where
The following demand function has been estimated for Fantasy Pinball machines:
QD = 3,500 - 40P + 17.5Px + 670U + 9A + 6,500N
Where P = monthly rental price of Fantasy Pinball machines
Px = monthly rental price of Old Chicago pinball machines (a competitor)
U = current unemployment rate in the 10 largest metropolitan areas
A = advertising expenditures for Fantasy Pinball machines in thousands of dollars
N = fraction of the US population between 10 and 30
a) What is the point elasticity of demand with respect to Fantasy Pinball machines when P = $150, Px= $100, U=0.12, A = $200,000 and N = .35?
b) What is the point cross elasticity of demand with respect to Old Chicago pinball machines for the values of the variables in part (a)?
c) A rumor is circulating in the industry that Old Chicago has excess inventory and is planning a 20% discount for new and existing customers.How should Fantasy respond if the news is verified?
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