solution

After a careful statistical analysis, the Chidester Company concludes the

demand function for its product is Q = 500 – 3P + 2Pr + 0.1I

where Q is the quantity demanded of its product, P is the price of its product,

Pr is the price of its rival’s product, and I is per capita disposable income (in

dollars). At present, P = $10, Pr = $20 and I = $6,000.

a. What is the price elasticity of demand for the firm’s product?

b. What is the income elasticity of demand for the firm’s product?

c. What is the cross-price elasticity of demand between its product and its

rival’s product? d. What is the implicit assumption regarding the population in the market?