1. The XYZ company is a producer of dishwashers. The company's marketing department has

estimated the following demand curve for the company's best-selling model in one of its regions.

2000 4 6 5 5 4 Q P AI P A C c

where Q = Number of dishwashers demanded

P = $600; Price of dishwashers

A = $150; Advertising expenditures (thousands)

I = $50; GDP per capita (thousands)

PC = $500; Competitor's price

AC = $200; Competitor's advertising expenditures (thousands)

A. What would be the effect on the sales of dishwashers if the competitor reduces price by $50?

What should be the change in P to offset the decrease in PC ?

B. In response to competitor's strategy of reducing PC , what else can the company do to keep sales

at the same level if it does not want to change P ? (Base your answer on the information given

above.)

C. If the government increases the sales tax by 1 percent, what will be the sale price of dishwashers

after the tax (assume that the elasticity of demand is equal to the elasticity of supply in absolute

value).