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Q3 Suppose you are the in-house economist for a Japanese mini-mill steel company. You have estimated the following demand elasticities from the estimated demand function for steel, where
Qd = f(P, M, Pa) where P = price of steel, M = income and Pa = Price of aluminum
Own-price elasticity : =-2 Income Elasticity =1 and Cross price elasticity = 1.5
Next year, the firm would like to increase the price of steel it sells by 6%. The management forecasts that income will rise by 4% and that the price of aluminum will fall by 2%.
If the sales this year are 1200 tons of steel, how many tons can the firm expect to sell next year?
B> By what percentage must the firm change the price of steel to keep its sales at 1200 tons next year?