ECO550 Week 3 Assignment 1
ECO 550

Part 1:
QD = - 5200 – 42P + 20C + 5.2(I) + 0.20(A) + 0.25(M)
By converting the cent values into dollars and by putting the values of Price, competitions, income, Advertisement and number of oven, we shall have the following demand.
So 500 cents= 5 Dollar 600 Cents= 6 Dollars
QD=-5200-42(5)+20(6)+5.2(5500)+0.2(10,000)+0.25(5000)
QD = -5200-210+120+28600+2000+1250
QD = 26,560 units
Ep ( Price elasticity of demand)
Own price elasticity of demand (ep) = ∂Q∂P×PQ
∂Q∂P = -42, P = 5, Q = 26,560
Own Price elasticity (ep) = - 42 × 526,560 x 100= - 0.79 (approx.)
EX (Cross Price elasticity-in terms of competitors’ products)
Cross price elasticity (exy) = ∂Q∂Px×PQ
∂Q∂Px = 20, Px = 6, Q = 26,560
Cross price elasticity (exy) = 6 × 2026,560 x 100= 0.45 (approx.)
EI (Income elasticity)
Income elasticity (eI) = ∂Q∂I×IQ
∂Q∂I = 5.2, I = 5500, Q = 26,560
Income elasticity (eI) = 5.2 × 550026,560 = 1.077 (approx.)
EA ( Advertisement elasticity)
Advertisement elasticity (eA) = ∂Q∂A×AQ
∂Q∂A = 0.2, A = 10,000, Q = 26,560
Advertisement elasticity (eA) = 0.2 × 10,00026,560 = 0.075 (approx.)
EM Supply elasticity
Supply elasticity (eM) = ∂Q∂A×MQ
∂Q∂A = 0.25, M = 5,000, Q = 26,560
Suppply elasticity (eA) = 0.25 × 5,00026,560 = 0.047 (approx.)

Part 2:
Price elasticity of demand Price elasticity is -0.79. There is negative relationship between price and demand. However, the ratio is less than 1, which means that an increase in the price of the food leads to the fall of the quantity demanded by less than proportionate amount. Therefore, an increase in the price may lead to a higher net revenue as price x quantity in this case may be higher than the current price x quantity amount.
Cross Price elasticity - in terms of competitors’ products Cross-price elasticity is 0.45. If the price of a competitor’s