elasticity 6

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  1. You directed your research department to do some research on the demand for Tesla sedans. They selected BMW i3 Sedans and Chevy Bolts as comparative offerings. Using regression analysis, the research department comes up the following estimate for yearly demand.

Qx = 7500 -1*Px +0.02*M +2*PB +2*PC

Where: Px = $70,000 M = $150,000 PB = $65,000 PC = $40,000

A. PB and PC represent the price for i3 sedans and Bolt sedans respectively. Are these items compliments or substitutes when compared to Teslas? Give evidence to support your answer.

B. Is the demand for Tesla sedans elastic or inelastic to price changes of BMW i3 and Bolt at the price points given in the problem? Interpret the result you find and explain what it means.

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