Suppose that a coffee producing firm estimated the following regression of the

demand for its brand of coffee:

Qc 1.5 3.0Pc 0.8Y 2.0Pb 0.6PS 1.2 A

where Q c = sales of coffee brand C, in dollars

per pound P c = price of coffee brand C,

in dollars per pound

Y = personal disposable income, in millions of dollars per year

P b = price of the competitive brand of coffee, in dollars

per pound P s = price of sugar, in dollars per pound

A = advertising expenditures for coffee brand C, in hundreds of thousands of

dollars per year.

Suppose also that this year, P c = $2, Y = $2.5, P b = $1.80,P s = $1 and A =$1.

a. Interpret the results of the estimated demand.

b. Compute point price elasticity of demand for the firm's brand of coffee

with respect to its price.

c. Compute the cross-price elasticity of demand for coffee with respect to the

price of competitive coffee brand b.

d. At the current price level, would it be viable for the firm to increase the

price level of its brand of coffee? Support your answer. (Hint, what effect

does an increase in price of the firm's brand of coffee have on total

revenue?)

e. Would you recommend that the firm continues to advertise its product?