Managerial economic home work

Managerial economic home work

Answer all questions, a through f. On questions c, d, e and f show your math. If you do not show your math you do not receive points.
The general demand function for a good, Good A, is…
QD = 800 – 5*P + 0.02*M + 6*PR + 3*T + 5*PE + .4*N
Where
QD = quantity demanded of Good A per month
P = the price of Good A
M = average household income
PR = the price of a related good, we’ll call it Good B
T = a consumer taste index
PE = the price consumers expect to pay next month for Good A
N = the number of buyers in the market

a. Is Good A a normal good or an inferior good? How do we know exactly?
b. Are Good A and Good B complements or substitutes? How do we know exactly?
c. Assume M = $80,000, PR = $30, T = 5, PE = $12, and N = 6,000. Using these, calculate and write down the direct demand function for Good A. Show your math. Watch the decimals! The coefficient on M is 0.02 and the coefficient on N is .4
d. Using your answer to part “c” directly above, calculate and write down the inverse demand function for Good A. Show your math.
e. When P = $100 what is the quantity demanded of Good A? How does that change when P = $200? (Notice this question is about P, not PR or PE). Show your math.
f. Now assume that M is not $80,000 but it is $40,000. No other variables have changed. What is the quantity of Good A that is demanded now when P = $100? When P = $200? Show your math.

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