Suppose you take the log of the variables in a demand function and estimate the coefficients as noted below: Ln QXD = 5 - 2.2 Ln PX 0.5 Ln I 0.8 Ln A, where, Ln = natural log QXD = quantity demanded for X PX = price of X I = income A = advertising expenditure (Be sure to show your work step by step): a. If the price of X falls by 5%, calculate the percentage change in the quantity demanded for X. b. If the price of X falls by 5%, will total revenue rise or fall? Why? c. If a recession lowers income per capita by 8%, by how much will QXD fall? Why? d. By what percentage should advertising expenditure rise to restore the decline in QXD that occurred because of the recession in part c? Why ?

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Answers a Percentage Change in Quantity Demanded for X QXD Price falls by 5 so LnPX decreases by 5 We can approximate this change using a small percen... View the full answer