Question: A book publisher has the following demand function for the firm's novels (Qx):
Qx = 12,000-5,000Px + 5I + 500Pc
where Px is the price charged for the firm's novels, I is income per Capita, and Pc is the price of books from competing publishers.
Assume that the initial values of Px, I, and Pc are $5, $10,000, and $6, respectively
Q1. Calculate the price elasticity and determine what effect a marginal (small) price increase from the initial price would have on total revenues?
Q2. Calculate the income elasticity and evaluate how sale of the novels would change during a period of rising incomes?
Q3. Calculate the cross elasticity and assess the probable impact if competing publishes raise.