The demand for Wanderlust Travel Services (X) is estimated to be: QX = 22,000 – 2.5PX + 4PY – M + 1.5AX
The demand for Wanderlust Travel Services (X) is estimated to be:
QX = 22,000 – 2.5PX + 4PY – M + 1.5AX
where AX represents the amount of advertising spent on X, M is income per
capita, and the other variables have their usual interpretations.
Suppose that the price of good X is $450, good Y sells for $40, the company
utilizes 3000 units of advertising, and consumer income is $20,000.
a. Calculate the elasticity of demand for good X with respect to the price of X,
the price of Y, income, and advertising. (8 marks)
c. Calculate consumer surplus at the profit‐maximizing price if the marginal
cost is $264.