Demand equation-advertising expenditure-quantity demanded
Business Economics
Suppose a firm has the following demand equation: Qd = 1,000 – 3000 P + 10A Where QD = quantity demanded P = price (in dollars) A = advertising expenditure (in dollars) Assume P = $3.00 and A = $2,000 a. Suppose the firm dropped the price to $2.50. Would this be beneficial? Explain. Illustrate your answer with the use of a demand curve. (You can also use elasticity concept) b. Suppose the firm raised the price to $4.00 while increasing its advertising expenditure by $100. Would this be beneficial? Explain. (Hint: First construct the curve assuming A = $2,000. Then construct a new curve assuming A = $2,100)
