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QUESTION

Suppose that the demand for MMs (the candy) has been estimated to be Q m = 96 - P m + .6P h - .43P c + .

Suppose that the demand for M&Ms (the candy) has been estimated to be Qm = 96 - Pm + .6Ph - .43Pc + .2I where QM is the number of bags of M&Ms purchased (in thousands), Pm is the price of M&Ms (in cents), Ph is the price of a Hershey bar (in cents), Pc is the price of popcorn (in cents) and I is per capita income (measured in thousands). Assume further that the current values for these variables are Qm = 27, Pm = Ph = 80, Pc = 100 and I = 30. Calculate the price elasticity of demand (Ep), the cross-price elasticity of demand with respect to Ph and Pc and the income elasticity of demand. Is demand elastic? Are M&Ms and Hersheys substitutes or complements? What about M&Ms and popcorn? Are M&Ms normal, inferior or a luxury good? Explain. What price of M&Ms would maximize the revenue generated by the sale of M&Ms? Explain.

I've got an understanding of PE and CPE, I'm having trouble on how to find the price that would maximize revenue.

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