Since all the Hawkins Company's costs (other than advertising) are essentially fixed costs, it wants to maximize its total revenue (net of advertising expenses). According to a regression analysis (based on 124 observations) carried out by a consultant hired by the Hawkins Company,
Q = - 23 - 4.1P + 4.2I + 3.1A
where Q is the quantity demanded of the firm's product (in dozens), P is the price of the firm's product (in dollars per dozen), I is per capita income (in dollars), and A is advertising expenditure (in dollars).
a. If the price of the product is $10 per dozen, should the firm increase its advertising?
b. If the advertising bud get is fixed at $10,000 and per capita income equals $8,000, what is the firm's marginal revenue curve?
c. If the advertising bud get is fixed at $10,000 and per capita income equals $8,000, what price should managers charge?