Question

1. Bill’s Poster Shops Inc., has completed an analysis of weekly demand for its posters in three San Francisco-area outlets. Bill study revealed:

Qx = 56,000 – 2000 Px + 5000 POP + 1000 Py        R² = .95

             (2.39)*     (3.5)*        (3.67)*     (2.6)*

                        * t-statistics at .05 level

Where Qx = annual poster demand; Px = poster price in dollars; POP = high school and college student population within a four mile radius (in thousands), and Py = a price index of competitor poster prices in dollars. During this period a typical outlet had Px = $5, POP = 10000 and Py = $4

1. Explain a brief summary of what the equation results mean.
2. What is the demand curve faced by the average Bill’s outlet?
3. Solve for the current point price elasticity for Bill’s posters?
4. What is the cross-price elasticity of demand faced by a typical Bill’s outlet?

Answer 1