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Maximizing Revenue and Advertising Expenditure

McBurger hires you as a consultant for advice 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? [Grading here is based solely on your calculations.]
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? [4].

Solution Preview

McBurger hires you as a consultant to advice 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 ...

Solution Summary

The solution assists with maximizing revenue and advertising expenditure.

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