Question
Your marketing department estimates that the demand for your product is Q = -700P + 200I - 500S + 0.01A, where P is the price
Your marketing department estimates that the demand for your product is Q = -700P + 200I - 500S + 0.01A, where P is the price of your product, I is per capita disposable income during the year in which the study was done, S is the price of computer software your company sells, and A is your company's expenditure on advertising. Suppose that during the year of study, I = $13,000, S = $500, and A = $50,000,000. a. At what price is your total revenue a maximum? What is the total revenue at this price? What is price elasticity at this price? b. Holding the price in part a constant, your company increases the price of its software to $550. What will be the new total revenue? c. How much must you increase your advertising budget to generate the same total revenue as before the increase in software price? d. Graph the relationship between price and total revenue.
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