The Following Demand Function Has Been Estimated for Fantasy Pinball

question 31

Essay

The following demand function has been estimated for Fantasy pinball machines:
Q_D = 3,500 - 40P + 17.5P_x + 670U + .0090A + 6,500N

where P = monthly rental price of Fantasy pinball machines
P_x = monthly rental price of Old Chicago pinball machines (their largest competitor)
U = current unemployment rate in the 10 largest metropolitan areas
A = advertising expenditures for Fantasy pinball machines
N = fraction of the U.S. population between ages 10 and 30

(a) What is the point price elasticity of demand for Fantasy pinball machines when P = $150, P_x = $100, U = .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 independent variables given in part (a)?

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