Given the Following Demand Function

question 11

Essay

Given the following demand function:
Q = 2.0 P^-1.33 Y^2.0 A^.50
where Q = quantity demanded (thousands of units)
P = price ($/unit)
Y = disposable income per capita ($ thousands)
A = advertising expenditures ($ thousands)

determine the following when P = $2/unit, Y = $8 (i.e., $8000), and A = $25 (i.e., $25,000)

(a) Price elasticity of demand
(b) The approximate percentage increase in demand if disposable income percentage increases by 3%.
(c) The approximate percentage increase in demand if advertising expenditures are increased by 5 percent.

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Definitions:

Research Hypothesis

A statement suggesting a potential outcome or association that a study is designed to investigate, often proposing how two variables are related.

Null Hypothesis

An assertion that there is no significant difference or relationship between specified populations, groups, or variables.

FA

A statistical method, factor analysis, used to describe variability among observed, correlated variables.