Q1) Assume a firm has following demand equation: Q = 1,000 - 3,000P + 10A
Where Q = quantity demanded
P = product price (in dollars)
A = advertising expenditure (in dollars)
Suppose for problems below that P = $3 and A = $2,000.
a. Assume the firm dropped price to $2.50. Would this be beneficial? Describe. Illustrate your answer using a demand schedule and demand curve.
b. Assume firm raised the price to $4.00 while increasing its advertising expenditure by $100. Would this be beneficial? Describe. Illustrate your answer with the use of a demand schedule and a demand curve.
(Hint: First create the schedule and curve assuming A = $2,000. Then create new schedule and curve assuming A = $2,100.)