Edgar only consumes protein shakes with his income, I. The price ...

[PhilipSeeMore]

Edgar only consumes protein shakes with his income, I. The price of shakes is p.
 
  a. What is Edgar's demand equation for shakes?
  b. Can protein shakes be an inferior good for Edgar? Explain.
  c. What is the price elasticity of Edgar's demand for shakes? Derive using calculus.
  d. What is the income elasticity of Edgar's demand for shakes?

Question 2

For an oligopolistic firm, which of the following can be identified as a strategy?
 
  A) Produce 10,000 units regardless of what the rivals do.
  B) Advertise if the rival advertises, do not advertise if the rival does not advertise.
  C) Raise the price if the rival raises the price, keep the current price if the rival lowers its price.
  D) All of above.

[smrerig]

Answer to Question 1

a. Q = I/p
b. No, as income rises, Edgar will purchase more of the only good he consumes, making shakes a normal good. Also, recall that the weighted sum of income elasticities must sum to 1.
c. With calculus, dQ/dp = -I/p2. Ed= -1.
d. With calculus, dQ/dI = 1/p. Ei = 1. In words, if Edgar's income doubles, he will double his consumption of protein shakes.

Answer to Question 2

D

[PhilipSeeMore]

Excellent

[kthug]

Gracias!