Suppose that t he price elasticity of demand for widgets is -1.5. The income ela

Question

Suppose that t he price elasticity of demand for widgets is -1.5. The income elasticity is +3.0. The cross-price elasticity with respect to changes in the price of gadgets is -2.0. Would you characterize the demand for widgets as elastic or inelastic? If widget sellers increase the price of widgets, what happens to total revenue? Are widgets and gadgets substitutes or complements? If income increases by 5%, in what direction, and by how much, does demand for widgets change? Recalling that the optimal pricing formula is P = MC/(1 + 1/e), where MC denotes marginal cost and epsilon represents the price elasticity, what price should widget sellers charge if they seek to maximize profits, and if MC = 20? A consumer is subject to the budget constraint shown by the solid line "Budget 1". His initial utility-maximizing consumption bundle is denoted at Point A. Suppose the price of Y decreases, causing the budget constraint to shift to the solid line "Budget 2", and his utility-maximizing consumption bundle is now at Point C.

Explanation / Answer

a) Demand of the widgets in Elastic.

b) If the widget seller increases the price of the widget revenue also rises.

c)The negative sign shows that widget and gadget are complements

d)The Price is 60( By putting the values)

4)

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