Airbeam Inc. has hired a consultant to estimate the demand function for its recreational vehicle. The estimated demand function is:
Qx = 75px-1.2py0.8pz-3.5N2.5, where
Qx = quantity demanded of the firm's recreational vehicles
px = price of its recreational vehicle
py = price of detachable camper for a pick-up sold by another company
pz = price of gasoline
N = consumer income
(a) By what % will demand change if Airbeam cuts its price by 10%?
(b) The price of detachable campers is expected to fall by 2%. Consumer income is forecasted to rise by 1%. Gasoline prices are estimated to rise by 20%. Given that Airbeam wants to increase its unit sales by 5%, by what % should it change its price?