The economic analysis division of Mapco Enterprises has estimated the demand function for its line of weed trimmers as
QD = 18,000 + 0.4N − 350PM + 90PS
whereN = number of new homes completed in the primary market area
PM = price of the Mapco trimmer
PS = price of its competitor’s Surefire trimmer
In 2010, 15,000 new homes are expected to be completed in the primary market area. Mapco plans to charge $50 for its trimmer. The Surefire trimmer is expected to sell for $55.
a. What sales are forecast for 2010 under these conditions?
b. If its competitor cuts the price of the Surefire trimmer to $50, what effect will this have on Mapco’s sales?
c. What effect would a 30 percent reduction in the number of new homes completed have on Mapco’s sales (ignore the impact of the price cut of the Surefire trimmer)?