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XYZ produces computer software called “Model It” and its demand is estimated to be: QMMS MMSAdjusted R2MSM  = 550 – 5P+ 3.5P+ 2.8Y, where, Q denotes units sold of “Model It” software, P denotes “Model It’s” price, P denotes the price of a best-selling competitor, and Y is the average income of Model It’s

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XYZ produces computer software called “Model It” and its demand is estimated to be: QMMS MMSAdjusted R2MSM

 = 550 – 5P+ 3.5P+ 2.8Y, where, Q denotes units sold of “Model It” software, P denotes “Model It’s” price, P denotes the price of a best-selling competitor, and Y is the average income of Model It’s consumers (measured in thousands).  = 0.85, and all of the coefficients are statistically significant.

a. Currently, P = $110, P = $152, and Y = 60. What is the predicted quantity demanded (Q) for “Model It” software?

b.  Using the information from a, compute the cross-price elasticity for “Model It” in regards to the current price of the competitor’s software package (PS) and the current quantity of Model It” (QM).

c.    Using the information from a, compute the income elasticity for “Model It” in regards at the current income level (Y) and the quantity of Model It” (QM).

d.    Given that currently, PS = $152 and Y = 60, state the demand function for “Model It’s” (format should be: QM = a + bPM)and its inverse demand curve (PM = a + bQM).

e Determine the quantity that maximizes total revenue based on your answer to part d.

 
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