Effects of advertising on market equilibrium
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Joy's frozen yogurt shops have enjoyed rapid growth in northeastern states in recent years. From the analysis of joy's various outlets, it was found that the demand curve follows this pattern. Q=200-300P+120 I +65T-250Ac+400 Aj
Q= number of cups served
I= per capita income
T= average outdoor temperature
Ac= competition's monthly advertising expenditure
Aj=joy's own monthly advertising expenditures
P=1.50, I=10, T=60, Ac=15, Aj=10
a) Estimate the number of cups served per week and determine outlet demand curve
b) What would be the effect of a $5000 increase in the competitors' advertisement expenditure and outlet demand curve
c) What would joy's advertising expenditure have to be to counteract this effect?
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Solution Summary
Using the demand curve, we determine how a competitor's advertising will affect quantity demanded.
Solution Preview
a. We fill in the values for each variable and solve for Q:
Q=200-300(1.50)+120 (10) +65(60)-250 ...
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