Question

In: Economics

Annual demand for an Electronic company is given by the following equation: Q = 5000 +...

Annual demand for an Electronic company is given by the following equation:
Q = 5000 + 0.5 Y + 0.2 A - 100P
where Q is the quantity demanded per year, P is price, Y is income per household, and A is advertising expenditure.
Currently, Y = $25000, A = $10000, and P= 100.


1.8. If this company wants to increase the current demand for its products by 15%, by how much should it increase its advertising expenditure? (1 point)
1.9. If consumer incomes increase to $35,000, find the new demand curve? (1 point)
10. Represent graphically demand curves found in 1.2. and 1.8? (1 point)

Solutions

Expert Solution

The demand function is:

Q = 5000 + 0.5 Y + 0.2 A - 100P

Where,

Y = $25000

A = $10000

P= 100

The current demand Q = 5000 + 0.5*25000 + 0.2*10000 - 100*100

Q = 5000 + 12500 + 2000 - 10000

Q = 9500

1.8

The current demand need to be 15% higfher , that means Q = 1.15*9500 = 10925

The required advertisement expenditure = 10000 + x

Q = 5000 + 0.5 Y + 0.2 A - 100P

10925 = 5000 + 0.5*25000 + 0.2*(10000 +x) - 100*100

10925 = 5000 + 12500 + 2000 + 0.2x -10000

10925 = 9500 + 0.2x

0.2x = 10925 - 9500

0.2x = 1425

x = 7125

Hence, the advertisement expenditure should increase by $7125

1.9

When New Y = $35000

The new demand curve = Q = 5000 + 0.5 Y + 0.2 A - 100P

Q = 5000 + 0.5*35000 + 0.2A -100P

Q = 5000 + 17500 + 0.2A - 100P

Q = 22500 + 0.2A - 100P

The sub-part 1.2 is not provided in the question. Assume it might indicate the old demand (Q_Old)

The demand curve as per 1.2 and 1.8 is:

Rahul Sunny answered 7 months ago
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