Answer to Question #82333 in Macroeconomics for muhammad UZair

Question

6. Joy’s Frozen Yogurt shops have enjoyed rapid growth in northeastern states in recent years. From
the analysis of Joy’s various outlets, it was found that the demand curve follows this pattern:
Q = 200 - 300P + 120I + 65T - 250Ac + 400Aj

where Q = number of cups served per week
P = average price paid for each cup
I = per capita income in the given market (thousands)
T = average outdoor temperature
Ac = competition’s monthly advertising expenditures (thousands)
Aj = Joy’s own monthly advertising expenditures (thousands)
One of the outlets has the following conditions: P = 1.50, I = 10, T = 60, Ac = 15, Aj = 10.
a. Estimate the number of cups served per week by this outlet. Also determine the outlet’s
demand curve.
b. What would be the effect of a $5,000 increase in the competitor’s advertising expenditure?
Illustrate the effect on the outlet’s demand curve.
c. What would Joy’s advertising expenditure have to be to counteract this effect?

Answer 1

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