The Following Linear Demand Specification Is Estimated for Conlan Enterprises,a $Q = a + b P + c M + d P _ { R }$

question 3

Multiple Choice

The following linear demand specification is estimated for Conlan Enterprises,a price-setting firm: $Q = a + b P + c M + d P _ { R }$ where Q is the quantity demanded of the product Conlan Enterprises sells,P is the price of that product,M is income,and $P _ { R }$ is the price of a related product.The results of the estimation are presented below: Assume that the income is $10,000,the price of the related good is $40,and Conlan chooses to set the price of this product at $30.At the prices and income given above,what is the income elasticity?

• A)-1.62
• B)-0.87
• C)0.21
• D)0.31
• E)1.50

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