QUESTION
QUESTION FOUR
An economic consultant for MCM Corporation recently provided the firm’s marketing manager with this estimate of the demand function for the firm’s product:
Qxd = 12,000 − 3Px + 4Py − 1M + 2Ax
where Qxd represents the amount consumed of good X, Px is the price of good X, Py is the price of good Y, M is income, and Ax represents the amount of advertising spent on good X. Suppose good X sells for K200 per unit, good Y sells for K15 per unit, the company utilizes 2,000 units of advertising, and consumer income is K10, 000.
I. How much of good X do consumers purchase?
II. Are goods X and Y substitutes or complements?
III. Is good X a normal or an inferior good?
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