Managerial Economics

In Class Exercise Three A

1.  Assume you have gathered data regarding your customer demand and have found your "best fit" along a linear demand curve.  It turns out your relationship is Qd = 20 - 3P.

Plot  your demand curve in $2 intervals starting with P = 0 until Qd = 0 (at what price would this happen?).

2.  Then assume that income changes from 10 to 15 and the demand function is now:  Qd = 20 - 3P + 2(I).  Remember I = income.

Plot both demand curves (at least 4 data points) (I = 10 and I = 15) on the same graph in $2 intervals starting with P = 0 until Qd = 0 (at what price would this happen in both cases?).  What kind of good is this with respect to income?  How do you know?