Question

The market demand function for four-year private universities is given by the equation Qpr =120−2Ppr +8Ppu...

The market demand function for four-year private universities is given by the equation

Qpr =120−2Ppr +8Ppu +4I d

where Qpr is the number of applicants to private universities per year in thousands, d

Ppr is the average price of private universities (in thousands of CAD), I is the household monthly income (in thousands of CAD), and Ppu is the average price of public universities (in thousands of CAD). Assume that Ppr is equal to 20, Ppu is equal to 10, and I is equal to 60.

a. What is the price elasticity of demand for private universities? (5 points)

b. What is the income elasticity of demand for private universities? (5 points)

c. What is the cross-price elasticity of demand for private universities with respect to the price of public universities? (5 points)

d. Indicate whether public universities are substitutes or complement for private universities. (5 points)

e. Are private universities normal goods or inferior goods. (5 points)

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