Question

MK Corp estimates that its demand function is as follows: p-144
Q = 400 - 12.5P+ 25A + 14Y + 10P*
Where Q is the quantity demanded per month, P is the product’s price(in $), A is the firm’s advertising expenditure (in $’000 per month), Y is percapita disposable income (in $’000), and P * is the price of AJ Corp.
a. During the next five years, per capita disposable income is expected toincrease by $5,000 and AJ is expected to increase its price by $12. Whateffect will this have on the firm’s sales volume?
b. If MK wants to change its price by enough to offset the above effects, byhow much must it do so?
c. Compare the profitability of maintaining sales volume by either changingprice or changing advertising spending.
d. If MK’s current price is $60 and it spends $10,000 per month on advertising,while per capita income is $25,000 and AJ’s price is $70, calculatethe price elasticity of demand with the price change.
e. What can be said about the effect of the above price change on profit?
f. What can be said about the relationship between the products ofMK and AJ?

Answer 1

Explanation:

तुम मेरा pjwuxccccc