a) Compute the store’s price elasticity and advertising elasticity. b) Check whether your current $1.50 price is profit maximizing. If not, determine the store’s optimal quantity and price. c) Should the store consider increasing its advertising spending? Why or why not.
1.Amalgamated Popcorn, Inc. sells bags of flavored gourmet popcorn in a popular mall. As shop owner and operator, you have observed that weekly popcorn sales are well-described by the demand equation: Q = 1,200 -800P + 2.0A, where A denotes advertising weekly spending (in dollars). You are currently charging $1.50 per bag of popcorn (for which the marginal cost is $.75) and spending $500 per week on advertising.
a) Compute the store’s
b) Check whether your current $1.50 price is profit maximizing. If not, determine the store’s optimal quantity and price.
c) Should the store consider increasing its advertising spending? Why or why not.
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 5 images
