Question

In: Advanced Math

Where QdBG is quantity demanded of boardgames. PBG is the price of boardgames. PP is the...

Where QdBG is quantity demanded of boardgames. PBG is the price of boardgames. PP is the average price of puzzles. M is average annual household income. Pop is the population. Ad is the annual dollars spent on advertising. R is the cost of capital to the firm denoted by the average interest rate (in decimal format). Suppose PP = $7, Pop = 1,000,000, M = $60,000, and Ad = $10,000.

a) Calculate the quantity demanded of the boardgames if its price is $9.

b) Calculate the POINT price elasticity of demand for the boardgames at this price; Based on your

calculation, is the demand for boardgames inelastic or elastic in this price range?

c) Calculate the POINT cross-price elasticity of demand for puzzles; Based on your calculation, are puzzles and boardgames considered to be substitutes or complements?

d) Calculate the POINT income elasticity of demand for boardgames; Based on your calculation, are

boardgames considered to be a normal good or inferior good? A necessity or luxury good?

e) Find the inverse demand function.

f) Find the total revenue function for boardgames: TR =f(Q).

g) At what price and quantity would the boardgames maximize its monthly revenue? Verify you found

a maximum.

h) Calculate the advertising elasticity of demand.

i. Is the response by consumers elastic or inelastic?

ii. What, if any, change in Total Revenues associated with boardgames occurs due to the change

in advertising?

iii. Is the extra advertising dollars a good investment? Why or why not? Is there any additional

information you would want to know before deciding to advertise more or less?

Expert Solution

Colby Messinger answered 2 years ago

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