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    Effect of Price changes on Demand

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    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.

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    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.

    $2.19