A TV channel has estimated the demand for its service to be given by the following function: Q=9.83p-1.2A2.5Y1.6P0-1.4 where Q = monthly sales in units P = price of the service in $ A = promotional expenditure in $’000 Y = average income of the market in $’000 P0 = price of ‘home movies’ in $ The current price of the TV channel is $60, promotional expenditure is $120,000, average income is $28,000, and the price of ‘homemovies’ is $45. Indicate whether the following statements are true or false, giving your reasons and making the necessary corrections e. ‘Home movies’ are a substitute for the TV channel. f. A 5 per cent increase in income will increase demand by 16 per cent. g. A 10 per cent increase in price will reduce demand by 12 per cent.
A TV channel has estimated the
e. ‘Home movies’ are a substitute for the TV channel.
f. A 5 per cent increase in income will increase demand by 16 per cent.
g. A 10 per cent increase in price will reduce demand by 12 per cent.
h. Current sales are over a million units a month.
i. The demand curve for the channel is given by:Q=9.83p-1.2
j. The channel’s sales are more affected by the price of ‘home movies’ than by the price of its own service.
k. If the channel increases its price this will reduce its profit.
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