The general linear demand for good X is estimated to beQ= 250,000 – 500P – 1.50M – 240PRWhere P is the price of good X, M is average income of consumers who buy goodX, and PR is the price of related good R. The values of P, M, and PR are expectedto be $200, $60,000 and $100, respectively. Use these values at this point ondemand to make the following computations.a. Compute the quantity of good X demanded for the given values of P, M,and PR .b. Calculate the price elasticity of demand Ep. at this point on the demand forX, is demand elastic, inelastic or unitary elastic? How would increasing theprice of X affect total revenue? Explain.4c. Calculate the income of elasticity of demand EM . Is good X normal orinferior? Explain how a 4 percent increase in income would affect demandfor X, all other factors affecting the demand for X remaining the same.d. Calculate the cross‐price elasticity.EXR Are the goods X and R substitutes orcomplements? Explain how a 5 percent decrease in the price of relatedgood R would affect demand for X, all other factors affecting the demandfor X remaining the same.Question 8The estimated market demand for good X is:Z Q
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