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 following questions 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 jaised 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.