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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.)

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M922863

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