PX = $9500   PY =$10000   I = $15000   A = $170000   W= 160
This function is:
       Qs = 89830 -40PS +20PX +15PY +2I+.001A +10W

1. Use the above to calculate the arc price elasticityof demand between PS = $8000 and PS = $7000. The arc elasticityformula is:
Ep= Q/P8 * P1+P1/Q1+Q2
  
2. Calculate the quantity demanded at each of the above prices andrevenue that will result if the quantity is sold (fill in tablebelow).  
PS     QS   Revenue
$8000      
$7000      

3.   Marketing suggests lowering the price PSfrom $8000 to $7000. The size of the elasticity coefficient in #1should tell you what is likely to happen to revenue. Explain whythis is (or is not) a good marketing suggestion from a revenueviewpoint (note: your answer in #1 and the calculations in #2should be giving the same message). If the implications in #1 and#2 differ, does the difference make sense (or did you make amistake in #1 or #2)?

4.   Calculate the point price elasticity ofdemand for Smooth Sailing boats at PS = $8000 (which should make QS= 141600). Does this elasticity value indicate that demand forSmooth Sailing boats is relatively elastic? Explain why or why not.The formula is:
Qs/Px *Ps/Qs

5.   Calculate the point cross-priceelasticity of demand between Qs and Px with Px = $9500. Use Qscorresponding to Ps = 8000. Other variables and their values are asgiven at the top, before question #1. Does this elasticity indicatethat the demand for Smooth Sailing’s boats is relatively responsiveto changes in Px? Explain why or why not. The formulais:

Esx= QS/Px*Px/Qs

6. Calculate the point cross-price elasticity of demandbetween QS and Py, given that Py = 10000 and that PS = $7500 (thusQS should equal 161,600). Other variables are as given at the topbefore #1. Does this elasticity indicate that the demand for SmoothSailing boats is relatively responsive to changes in Py? Explainwhy or why not. The formula is:
Esy= Qs/Py *Py/Qs