3-15. The price of oil is $30 per barrel and the price elasticity is constant and equal to -0.5. An oil embargo reduces

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3-15. The price of oil is $30 per barrel and the price
elasticity is constant and equal to -0.5. An oil embargo reduces
the quantity available by 20 percent. Use the arc elasticity
formula to calculate the percentage increase in the price of
oil.
3-16. The arc advertising elasticity is 1.5 as advertising
expenditure increases from $10 to $12 million. If demand is 50 at
an advertising expenditure of $12 million, what will demand be at
an advertising expenditure of $10 million?
3-17. The demand equation is estimated to be 50 - 3P + 2Po,
where Po is the price of some other good. Assume the average value
of P is $3 and the average value of Po is $6.
a. What is the price elasticity at the average values of P and
Po? How should the price of the good be changed to increase total
revenues?
b. What is the cross elasticity at the average values of P and
Po? What is the relationship between the two goods?
c. If the equation is correctly estimated, is the good inferior,
a necessity, or a luxury? Explain.
3-18. The Inquiry Club at Jefferson University has complied a
book that exposes the private lives of many of the professors on
campus. Economics majors in the club estimate that total revenue
from sales of the book is given by the equation.
TR=120Q-0.1(Q)^3
a. Over what output range is demand elastic?
b. Initially, the price is set at $17.60. To maximize total
revenue, should the price be increased or decreased? Explain.
3-19. The demand equation for a product is given by
P=30-0.1Q^2
a. Write an equation for the point elasticity as a function of
quantity.
b. At what price is demand unitary elastic?
3-20. The demand equation for a product is given by
Q=20I/P
Where I is income and P is price.
a. Write an equation for the point price elasticity. For what
values of I and P is demand unitary elastic? Explain.
b. Write an equation for the point income elasticity. For what
value of I and P is the good a necessity? Explain.
3-21. Given the demand equation, Q=12,000-10P^2.
a. For this equation, write the expression for the point price
elasticity of demand as a function of P.
b. Over what range of price is the demand inelastic?
3-22. Consider the demand equation, Qx=150-PxPo where the
subscript x and o refer to two different goods.
a. For this equation, write the expression for the point price
and cross elasticities of demand as a function of Po and Px.
b. What is the relationship between the price and cross
elasticities?