What is the current level of demand for the product of Aura Healthy DrinksCompany? 2. Calculate price elasticity for the firm’s product of X? 3. Calculate Advertising elasticity for the firm’s product X? 4. Calculate cross elasticity of demand between its product X and rival’s product Y?
Aura Healthy Drinks company private limited concludes that the demand function for its product X is:
Qx = 1000 – 0.2 Px + 0.5 Py + 0.04 Y + 0.01 A
Qx = Quantity demanded for its product X
Px = Price of X
Py = Price of Y (a substitute of product X)
Y= Consumers income
A= Advertisement expenditure of the firm
At present price of the product X is Rs. 100. Price of its substitute product Y is Rs. 120. Consumers income is Rs. 10,000 and Advertisement expenditure of the Aura Healthy DrinksCompany Pvt. Ltd. Is Rs. 6000?
Questions:
1. What is the current level of demand for the product of Aura Healthy DrinksCompany?
2. Calculate price elasticity for the firm’s product of X?
3. Calculate Advertising elasticity for the firm’s product X?
4. Calculate cross elasticity of demand between its product X and rival’s product Y?
If the firm reduces price of X by 20 %, what will be the impact on its demand?
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