You own a dog-walking business and you have paid a marketing firm to estimate the demand for your services. They have produced this demand function:Demanded =82−3P+0.5M+3PR
where P is the price of your dog-walking, M is income in your market and it is $50,000 (but just enters as 50), and PR is the price your competitor charges for their dog-walking service which is $24. You are currently charging a price of $20 for your service. Determine the quantity demanded and then use that to identify the Cross-Price Elasticity of Demand for your dog-walking service. NOW, having done that, use that Cross-Price elasticity to answer this question: What will be the percent change in the quantity demanded of your service if your competitor increases her prices by 20%?
a) Quantity demanded: 50; Cross-Price Elasticity: -1.2; Percent change: -24%
b) Quantity demanded: 60; Cross-Price Elasticity: -1.5; Percent change: -30%
c) Quantity demanded: 70; Cross-Price Elasticity: -0.8; Percent change: -16%
d) Quantity demanded: 80; Cross-Price Elasticity: -2.0; Percent change: -40%