solution

The McCauley Company hires a marketing consultant to estimate the demand

function for its product. The consultant concludes that this demand function is

Q = 100P -3.1I 2.3A0.1 where Q is the quantity demanded per capita per month, P is the product’s

price (in dollars), I is per capita disposable income (in dollars), and A is the firm’s advertising expenditures (in thousands of dollars). a. What is the price elasticity of demand? b. Will price increases result in increases or decreases in the amount spent on McCauley’s product?

c. What is the income elasticity of demand?

d. What is the advertising elasticity of demand?

e. If the population in the market increases by 10%, what is the effect on

the quantity demanded if P, I, and A are held constant?