# Effect of Price changes on Demand

Suppose a firm has the following demand equation:

Q = 1,000 - 3,000P + 10A,

where Q = quantity demanded

P = product price (in dollars)

A = advertising expenditures (in dollars)

Assume for the questions below that P = $3 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 schedule.

b. Suppose the firm raised the price to $4.00 while increasing the advertising expenditures by $100. Would this be beneficial? Explain. Illustrate your answer with the demand schedule.

https://brainmass.com/economics/demand-supply/effect-of-price-changes-on-demand-136795

#### Solution Summary

The solution examines the effect of increasing price (in conjunction with increasing advertising expenditure) and decreasing price on demand, given the demand equation.