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Given the demand function, for the given price changes.
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 expenditure (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 and demand curve.
b. Suppose the firm raised the price to $4.00 while increasing its advertising expenditure by $100. Would this be beneficial? Explain. Illustrate your answer with the use of a demand schedule and a demand curve.
(Hint: First construct the schedule and the curve assuming A = $2,000. Then construct the new schedule and curve assuming A = $2,100.)
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