MK Corp estimates that its demand function is as follows: Q = 150 – 5.4 P + 0.8 A + 2.8 Y -1.2 P* where Q is the quantity demanded per month (in 000s units), P is the product’s price (in TND), A is the firm’s advertising expenditure (in tnd’000 per month), Y is per capita disposable income (in tnd’000), and P* is the price of AJ Corp. 3 (a) During the next five years, per capita disposable income is expected to increase by tnd2,500. What effect will this have on the firm’s sales volume? (b) If MK wants to change its price by enough to offset the effect of the increase in income, by how much must it raise its price? (c) If MK raises its price by this amount, will it increase or decrease the price elasticity of demand? Explain.
Unitary Method
The word “unitary” comes from the word “unit”, which means a single and complete entity. In this method, we find the value of a unit product from the given number of products, and then we solve for the other number of products.
Speed, Time, and Distance
Imagine you and 3 of your friends are planning to go to the playground at 6 in the evening. Your house is one mile away from the playground and one of your friends named Jim must start at 5 pm to reach the playground by walk. The other two friends are 3 miles away.
Profit and Loss
The amount earned or lost on the sale of one or more items is referred to as the profit or loss on that item.
Units and Measurements
Measurements and comparisons are the foundation of science and engineering. We, therefore, need rules that tell us how things are measured and compared. For these measurements and comparisons, we perform certain experiments, and we will need the experiments to set up the devices.
MK Corp estimates that its demand
Q = 150 – 5.4 P + 0.8 A + 2.8 Y -1.2 P*
where Q is the quantity demanded per month (in 000s units), P is the product’s price (in TND), A is
the firm’s advertising expenditure (in tnd’000 per month), Y is per capita disposable income (in
tnd’000), and P* is the price of AJ Corp.
3
(a) During the next five years, per capita disposable income is expected to increase by tnd2,500.
What effect will this have on the firm’s sales volume?
(b) If MK wants to change its price by enough to offset the effect of the increase in income, by
how much must it raise its price?
(c) If MK raises its price by this amount, will it increase or decrease the price elasticity of
demand? Explain.
(d) What can be said about the relationship between the products of MK and AJ?
(e) If next year MK intends to charge tnd15 and spend tnd10,000 per month on promotion, while
it believes per capita income will be tnd12,000 and AJ’s price will be tnd3, calculate the
income elasticity of demand. What does this tell you about the nature of MK’s product?
(f) What effect would an increase in advertising of tnd1000 have on profitability, if each
additional unit costs tnd10 to produce?
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
