Integrating Problem

The research department of the Corn Flakes Corporation (CFC) estimated the following regression for the demand of the cornflakes it sells:

Qy = 1.0 - 2.0P, + 1.51 + 0.8P,- 3.0P,+ 1.0A where Q, = sales of CFC cornflakes, in millions of 10-ounce boxes per year P,= the price of CFC cornflakes, in dollars per 10-ounce box I = personal disposable income, in trillions of dollars per year Py= price of competitive brand of cornflakes, in dollars per 10-ounce box P,= price of milk, in dollars per quart A = advertising expenditures of CFC cornflakes, in hundreds of thousands of dollars per year %3D This year, P, = $2, I = $4, P, = $2.50, P,,= $1, and A = $2. (a) Calculate the sales of CFC cornflakes this year. (b) Calculate the elasticity of sales with respect to each variable in the demand function. (c) Estimate the level of sales next year if CFC reduces P, by 10 percent and increases advertising by 20 percent, I rises by 5 percent, P, is reduced by 10 percent, and P, remains unchanged. (d) By how much should CFC change its advertising if it wants its sales to be 30 percent higher than this year?