Assume SeatComfy Inc. estimates the demand for its table chairs to be Q = 5,000

Question

Assume SeatComfy Inc. estimates the demand for its table chairs to be Q = 5,000 - 25P + 4I +10PA - 15 PT, where P = the price of SeatComfy's chairs; PA = average price of competitors' chairs; PT = price of tables; and I = average income of SeatComfy's customers. Which of the following is true? A. SeatComfy's chairs are inferior goods; SeatComfy's chairs and tables are complements, while SeatComfy's and competitors' chairs are substitutes. SeatComfy's sales decrease by 250 units for each $10 increase in their own price. B. SeatComfy's chairs are normal goods; SeatComfy's and competitors' chairs are substitutes, while SeatComfy's sales are not affected by the pricing decisions of table producers. SeatComfy's sales increase by 50 percent if the price decreases by $2. C. SeatComfy's chairs are normal goods; SeatComfy's chairs and tables are complements, while SeatComfy's and competitors' chairs are substitutes. SeatComfy's sales decrease by 25 units as price increases by $1. D. SeatComfy's chairs are normal goods; SeatComfy's chairs and tables are complements, while SeatComfy's and competitors' chairs are substitutes. SeatComfy's sales decrease by 250 units as price increases by $1.

Explanation / Answer

Q = 5,000 - 25P + 4I +10PA - 15 PT

Option C.

Chairs sre normal goods due to positive relation between quantity demanded and income, Quantity demanded is positively related to Price of other competitors chairs. Thus, these are substitutes. Also, It si negatively related to price of chair. SO, the goods are complements.Increase in quantity demanded by 25 units as price decline by 1 unit.

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