Question

GE Healthcare wants to accurately project the demand for its computerized tomography (CT) scans. A member of ADU’s ECON 550 class helped GE in the development and estimation of an econometric model that can be used to predict demand for this important line of products. Sales forecast is indispensable for budgeting and other financial and operating planning activities. The estimation of the econometric model is as follows:

QCTGE= 6,100 – 0.05PCTGE+ 0.12PCTS – 2PR + 0.03I + 0.008A

Where

Q_CTGE= Quantity of CT scans sold by GE Healthcare

P_CTGE= Price of GE Healthcare CT scans

P_CTS= Price of Siemens Healthcare CT scans

P_R= Price of Radiologists per CT scan

I= Per capita income, and

A= Dollars spent annually on advertising

b. Find the price elasticity of demand assuming the following relevant historical averages:

Q_CTGE= 13,000

P_CTGE= $28,000

P_CTS= $37,000

P_R= $110

I=$45,000

A= $280,000

is the price of elasticity of demand elastic or inelastic, explain.

if the unit price of GE scans falls, does total revenue go up or down, explain.

Answer 1