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McBurger hires you as a consultant to advise on its best strategy. You estimate monthly demand for its burgers to be:

         Qd = 26,000 - 10,000P + 4,000Pc -.8Y +  0.5A

where the independent variables are respectively: P, price of McBurger's burgers, PC, price of competitors' burgers, Y, per capita income, and A, McBurger's advertising budget.  You observe that competitors have, on average, priced their burgers at $3.50, while McBurger charges $2.50.  Per capita income level in the store's geographic market is $15,000.  McBurger's advertising expenditure is $20,000 per month.  McBurger currently sells 13,000 burgers/month. 

1. How much revenue does McBurger currently earn based on the information above?

2. Is McBurger maximizing its revenues under current conditions? 

3. Based on the data given, McBurger should _______________ its advertising expenditure.

Possible answers: a) raise

b) lower

c) not change

d) we cannot say

4. What advice can you offer McBurger, based on the above information?

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M9443080
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