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The following linear demand specification is estimated for Conlan Enterprises, a price-setting firm: Q = a + bP + cM + dP R where Q

The following linear demand specification is estimated for Conlan Enterprises, a price-setting firm:

Q = a + bP + cM + dPR

where Q is the quantity demanded of the product Conlan Enterprises sells, P is the price of that product, M is income, and PR is the price of a related product. The results of the estimation are presented below:

DEPENDENT VARIABLE:QR-SQUAREF-RATIOP-VALUE ON FOBSERVATIONS:320.798436.140.0001VARIABLEPARAMETER ESTIMATESTANDARD ERRORT-RATIOP-VALUEINTERCEPT846.300076.700011.030.0001P8.60002.60003.310.0026M0.01840.00483.830.0007PR4.30751.23003.500.0016

  1. suppose income remains at $10,000 but the price of the related good increases to $60 and Conlan decides to raise the price of its product to $50. At the prices and income given above, Conlan can expect to sell _________units.

a.

864

b.

600

c.

342

d.

724

e.

872

2. suppose income remains at $10,000 but the price of the related good increases to $60 and Conlan decides to raise the price of its product to $50. What is the new own price elasticity of demand?

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