Advanced Consumer Electronics manufactures high-resolution digital cameras, and its marketing department has estimated the following monthly demand function for the cameras:
QACE = 270 – 0.8PACE – 3PM + 0.4PC + 0.006I + 0.03A
Where
QACE = the quantity of Advanced Consumer Electronics cameras demanded per month,
PACE = the price of an Advanced Consumer Electronics camera,
PM = the price of a memory card,
PC = the price of a competing camera,
I = annual average household income, and
A = monthly advertising expenditures.
Find the price elasticity of demand for ACE digital cameras if PACE = $600, PM = $40, PC = $500, I = $50,000, and A = $1,000.
Is the price elasticity of demand for ACE digital cameras elastic, unitary elastic, or inelastic at the point specifies in part (a)? What does the value you found in part (a) tell you about the quantity demanded of ACE digital cameras?
What is the cross price elasticity of demand between the quantity demanded of ACE digital cameras and the price of memory cards? Are those two items substitutes or complements? What does the value of this cross price elasticity tell you about the demand for ACE digital cameras?