1) Demand Function: Q_it(A_it) = _i + Ait + e_it

Profit Function: (A) = 6Q(A) 5.5Q(A) A²

Using this profit function, solve for the profit maximizing advertising level as a function of _i , , and e_it.

2) Suppose you estimate the relationship between quantity and advertising using a regression and you find the relationship:

(a) Q = 2.811 + 19.469A

Your p-value on the coefficient of A is p<0.0001 and the 95% confidence interval is [18.876, 20.063]

what would the implied optimal level of advertising?

(b) Q = 99.92 + 0.135A

Your p-value on the coefficient of A is p=0.081 and the 95% confidence interval is [-0.017, 0.286]

what would the implied optimal level of advertising?