The market research department of Paradox Enterprises has determined that the

demand for earrings is

Q = 1,000 - 5PX + 0.05I - 50PZ,

where PX is the price of earrings, I is income, and PZ is the price of necklaces. Suppose that PX

= $5, I = $20,000, and PZ = $15.

A. Compute the price elasticity of demand for earrings. According to your answer,

describe the demand for earring at the PX= $5.

B. Is the firm maximizing its total revenue at P = $5? If not, what price should it charge

to maximize TR? How much TR would be at the maximum? Verify your answer.

C. At P = $5, compute the income elasticity of demand for earrings. According to your

answer, describe the earrings as a good.

D. At P = $5, compute the cross-price elasticity of demand for earrings. According to

your answer, describe the relationship between earrings and necklaces.