A travel company has hired a management consulting company to analyze demand in

Question

A travel company has hired a management consulting company to analyze demand in 26 regional markets for one of its major products: a guided tour to a particular country. The equation for the quantity demanded is
Q = 1500 – 4p + 5A + 10I + 3Px
Where Q = amount of the product demanded
P = Price of the product in dollars
A = advertising expenditure in dollars
I = Income in dollars
Px = price of other travel products that are provided by a competing travel company.
a. Determine the demand curve for this product using the following data.
P = $400, A = $20,000, I = $15,000, Px = $500
b. Suppose people’s income drops to $10,000. How much would this firm have to increase its advertising in order to counteract the drop in income?

Explanation / Answer

A) demand = 1500 - 4*400 + 5*20,000 + 10*15,000 + 3*500 = 248,400 B) When I drops new demand would be: demand = 1500 - 4*400 + 5*20,000 + 10*10,000 + 3*500 = 198400 Difference = 248,400-198400 = 50,000 Since the coefficient of advertising is 5 (5a) They would need to raise advertising spending by 50,000/5 = 10,000 proof: 1500 - 4*400 + 5*30,000 + 10*10,000 + 3*500 = 248,400

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.