The market research department of Paradox Enterprises has determined that the demand for earrings is Q = 1,000 - 5PX + 0.05I - 50PZ where PX is the price of earrings, I is income, and PZ is the price of necklaces. Suppose that PX = $5, I = $20,000, and PZ = $15. A. Compute the price elasticity of demand for earrings. According to your answer, describe the demand for earrings at the PX= $5. B. Is the firm maximizing its total revenue at P = $5? If not, what price should it charge to maximize TR? How much TR would be at the maximum? Verify your answer. C. At P = $5, compute the income elasticity of demand for earrings. According to your answer, describe the earrings as good.
The
Q = 1,000 - 5PX + 0.05I - 50PZ
where PX is the
A. Compute the
B. Is the firm maximizing its total revenue at P = $5? If not, what price should it charge to maximize TR? How much TR would be at the maximum? Verify your answer.
C. At P = $5, compute the income elasticity of demand for earrings. According to your answer, describe the earrings as good.
D. At P = $5, compute the cross-price elasticity of demand for earrings. According to your answer, describe the relationship between earrings and necklaces.
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