Question: 41. Suppose Product A has the demand function QA = 10 5PA + 2PB + 0.01I. The initial values of the variables are QA

4–1. Suppose Product A has the demand function QA = 10 − 5PA + 2PB + 0.01I. The initial values of the variables are QA = 15, PA = $4, PB = $2.5 and I = $2,000.

a. When PA moves to $3.4, keeping other variables at their initial values, QA becomes 18. What is the corresponding own-price arc elasticity of demand?

b. If income, I, increases to $2,250 per period with all other variables held at their initial values, QA becomes 17.5. What is the corresponding income arc elasticity of demand?

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