Question

1. Assume that the price and income elasticities of demand for luxury cars are EP = –0.52 and EY = 3.2 respectively. In the coming year, car prices are expected to rise by 2 percent and income by 19.2 percent. Based on this information, sales of cars are expected to increase by_____%. Hint: Round to the second decimal. Percentages are between 0 - 100. If you calculate .0151 then the answer is 1.51%

2. For a good that has a price elasticity of demand of -1.5 and a marginal cost of $15.8 per unit, the profit-maximizing price should be approximately _____.

Hint: Put round your answer to the second decimal place.

Answer 1