Final answer:
The own price elasticity of demand measures how sensitive the quantity demanded of a product is to changes in its own price. In this case, the demand curve is given by Q = 1200 - 3Px - 0.1P₂. To find the own price elasticity of demand when P₁ = $140, we need to calculate the percentage change in quantity demanded and the percentage change in price.
Step-by-step explanation:
The own price elasticity of demand measures how sensitive the quantity demanded of a product is to changes in its own price. It is calculated as the percentage change in quantity demanded divided by the percentage change in price.
In this case, the demand curve is given by Q = 1200 - 3Px - 0.1P₂. To find the own price elasticity of demand when P₁ = $140, we need to calculate the percentage change in quantity demanded and the percentage change in price.
First, we can substitute P₁ = $140 into the demand curve equation to find the quantity demanded at this price. Then, we can calculate the percentage change in quantity demanded between P₁ = $140 and P = $300. Finally, we can calculate the percentage change in price. The own price elasticity of demand is then the percentage change in quantity demanded divided by the percentage change in price.
If the own price elasticity of demand is greater than 1, demand is considered elastic, meaning that a small change in price will result in a large change in quantity demanded. If the own price elasticity of demand is less than 1, demand is considered inelastic, meaning that a change in price will have a relatively small impact on quantity demanded.
If the firm decided to charge a price below $140, the demand would be more elastic, meaning that a small decrease in price would result in a larger increase in quantity demanded. This could potentially lead to an increase in the firm's revenue.