A manufacturer of automobiles is planning a new model and wants to determine the responsiveness of demand in a number of scenarios. The demand function for the new model is given by the following function: Q = 30000 – 3P + 2000ln(PA) + Y Where Q is the quantity sold of the new model, P is the price for the new model, PA is the price of the competitor’s model and Y is the annual income of a typical purchaser. The new model price is planned to be £20,000 and the competitor is charging £25,000. The annual income of a typical purchaser is £30,000. (a) The manufacturer wishes to determine the responsiveness of the demand for the new model if the price of a competitor’s model changes. Which measure of elasticity would be appropriate to fulfil this requirement? And provide a calculation of its value.
A manufacturer of automobiles is planning a new model and wants to determine the responsiveness of demand in a number of scenarios. The demand function for the new model is given by the following function:
Q = 30000 – 3P + 2000ln(PA) + Y
Where Q is the quantity sold of the new model, P is the price for the new model, PA is the price of the competitor’s model and Y is the annual income of a typical purchaser.
The new model price is planned to be £20,000 and the competitor is charging £25,000. The annual income of a typical purchaser is £30,000.
(a) The manufacturer wishes to determine the responsiveness of the demand for the new model if the price of a competitor’s model changes. Which measure of elasticity would be appropriate to fulfil this requirement? And provide a calculation of its value.
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