Given the estimated coconut demand equation as Qd= 1200-9.5P+16.2Pp +0.2Y where Qd is the quantity demanded,...

Given the estimated coconut demand equation as Qd= 1200-9.5P+16.2Pp +0.2Y where Qd is the quantity demanded, P= the price of coconut, Pp= the price of palm oil, and Y = income. Assuming P= 45cents, Pp=the price palm oil =31cents, and Qd = 1275 thousand metric tons per year:

a. Is the demand for coconuts price elastic, or inelastic? Based on your answer, should management raise or reduce the price in order to increase its operating revenue?

b. Given Y= $150, what is the income elasticity of demand coconuts? (Round your answer to 2 decimal places).

c. Is the demand for coconuts income elastic or inelastic? How do you know?

d. Is the demand for the good a normal good, or inferior good? How you know.

e. Calculate the cross-price elasticity of demand for coconuts as a result of a given percentage change in the price of palm oil. Are coconuts and palm oil cross-price elastic or inelastic?

Expert Solution

Rahul Sunny answered 1 year ago

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