Question: A firm has estimated the following demand function for its product (2 points): Q = 8 - 2P + 0.10I + A where Q is

A firm has estimated the following demand function for its product (2 points):

Q = 8 - 2P + 0.10I + A

where Q is quantity demanded per month in thousands, P is product price, I is an index of consumer income, and A is advertising expenditures per month in thousands. Assume that P = $10, I = 120, and A = 10. Use the point formulas to complete the elasticity calculations indicated below.

(i) Calculate quantity demanded.

Q = 8 - 2*(10)+0,10*(120)*(10)

Q = 10

Quantity Demand/Month:Q= 10.000.

(ii) Calculate the price elasticity of demand. Is demand elastic, inelastic, or unit elastic?

E_P= a₁*(P/Q)

a₁= -2

is this correct and is -2 elastic?

Demand =

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