The research department of the Corn Flakes Corporation (CFC) estimated the demand of the corn flakes it sells: Qx =2.0 -4.0Px +3.0I +1.6Py -6.0Pm +2.0A Where Qx =Sales of CFC cornflakes, in millions of 10-ounce boxes per year;  Px= the price of CFC cornflakes, in dollars per 10-once box; I= personal disposable income in millions of dollars per year; Py= price of competitive brand of cornflakes, in dollars per 10-once box; Pm= price of milk in dollars per quart; and A= advertising expenditures in thousands of dollars per year.  Given: Px = $4, I=$8, Py= $5.00, Pm= $2, and A= $4 a. Find the Qx of CFC cornflakes at the given values of the determinants of demand for cornflakes. b. What is the price elasticity of demand for cornflakes?  Is the demand for cornflakes price elastic, or inelastic? Should management increase, or lower if it desires to increase the operating revenue?   c. What is income elasticity of demand for cornflakes? Is the demand for cornflakes income elastic, or inelastic?  d. Are cornflakes a normal, or inferior good? How do you know?

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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The research department of the Corn Flakes Corporation (CFC) estimated the demand of the corn flakes it sells:
Qx =2.0 -4.0Px +3.0I +1.6Py -6.0Pm +2.0A


Where Qx =Sales of CFC cornflakes, in millions of 10-ounce boxes per year;  Px= the price of CFC cornflakes, in dollars per 10-once box; I= personal disposable income in millions of dollars per year; Py= price of competitive brand of cornflakes, in dollars per 10-once box; Pm= price of milk in dollars per quart; and A= advertising expenditures in thousands of dollars per year. 


Given: Px = $4, I=$8, Py= $5.00, Pm= $2, and A= $4


a. Find the Qx of CFC cornflakes at the given values of the determinants of demand for cornflakes.

b. What is the price elasticity of demand for cornflakes?  Is the demand for cornflakes price elastic, or inelastic? Should management increase, or lower if it desires to increase the operating revenue?  

c. What is income elasticity of demand for cornflakes? Is the demand for cornflakes income elastic, or inelastic? 

d. Are cornflakes a normal, or inferior good? How do you know? 

 

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Thank you. Would you be able to asssit with this last question?

e. What is the cross-price elasticity of demand for good X as the result of a given percentage change in the price of a competitive brand Y? Is the demand for good X cross-price elastic, or inelastic? Are good X and Y substitutes, or complementary goods? How you know?

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