Calculating own price, income and cross-price elasticities
A book publisher has the following demand function for the
firm’s novels (Qx):
Qx = 12,000-5,000Px + 5I + 500Pc
where Px is the price charged for the firm’s novels, I is
income per Capita, and Pc is the price of books from competing publishers.
Assume that the initial values of Px, I, and Pc are $5,
$10,000, and $6, respectively
(A) Calculate the price elasticity and determine what effect
a marginal (small) price increase from the initial price would have on total
revenues?
(B) Calculate the income elasticity and evaluate how sale of
the novels would change during a period of rising incomes?
(C) Calculate the cross elasticity and assess the probable
impact if competing publishes raise.
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