Demand function (QD) = -5200 - 42P + 20PX + 5.2I + 0.2A + 0.25M
Where; P= 500, PX=600, I=$5,500, A=$10,000 and M=5,000
Replace values in the equation;
QD = -5200 - 42(500) + 20(600) + 5.2(5,500) + 0.2(10,000) + 0.25(5,000)
= -5200 – 21,000 + 12,000 + 28,600 + 2,000 + 1,250
= 17,650
Price elasticity of demand = ∂QD∂P×PQD
∂QD = change in quantity demanded, ∂P = change in price; P= price, QD = quantity demanded
∂QD∂P = -42 QD= 17,650 P= 500
Price elasticity of demand = -42 ×50017,650
= -1.1898
The above elasticity indicates that the product’s quantity demanded ...