and Questions Problems, Ch. 3 (100%: 25 points; maximum, 30 points) The point total for each question is given in parenthesis before the question or problem number. Answers need not be typed, but they must be legible and presented as complete sentences. Points will be deducted for incorrect grammar, and mistakes of an analytical, mathematical, or graphical nature. Generally a 10 point question that asks for a verbal response should be about three quarters of a page in length. Feel free to work on the questions and problems together, but no coping is allowed. Also, feel free to ask about the homework in class, or in my office. Q&P designated as a "Spreadsheet Problem" are intended to familiarize yourself with the basics of using a spreadsheet. Include the spreadsheet with your answers. (10)3-1. Joy's Frozen Yogurt shops have enjoyed rapid growth in northeastern states in recent years. From analysis of Joy's various outlets, it was found that the demand curve follows this pattern: Q = 200 - 300P + 120I + 65T -250AC + 400AJ, where Q = number of cups served per week; P = average price for each cup; I = per capita income in the given market (in thousands); T = average outdoor temperature; AC = Competitor's monthly advertising expenditure (in thousands of $s); and AJ = Joy's monthly advertising expenditure (in thousands of $s). One of the outlets has the following conditions: P = 1.50; I = 10; T = 60; AC = 15, and AJ = 10. a. Estimate the number of cups served per week by this outlet. Also determine outlet's the demand curve. b. What would be the effect of a $5,000 increase in the competitor's advertising? c. What would Joy's advertising expenditure have to be to counteract this effect? (10)3-2. Suppose a firm has the following demand equation: Q = 1,000 - 3,000P + 10A where Q = quantity demanded per period; P = price in $s; and A = advertising expenditures in $s. Assume the P = $3 and A = $2,000. a. Suppose the firm dropped the price to $2.50. Would this be beneficial? Explain. b. Suppose the firm raised the price to $4.00 while increasing the advertising by $100. Would this be beneficial? Explain. (10)3-3. A travel Company has hired a management consulting company to analyze demand in 26 regional markets for one of its major products: a guided tour to a particular country. The consultant uses data to estimate the following equation: Q = 1,500 - 4P + 5A +10I + 3PX where Q is the amount demanded per period; P is the price of the product in dollars; A is advertising expenditures in thousands of dollars; I is per capita income in thousands of dollars; and PX is the price of some other travel products offered by a competing travel company. a. Calculate the amount demanded for the product using the following data: P = $400; A = $20,000; I = $15,000; and PX = $500. b. Suppose the competitor reduced the price of its travel product to $400 to match the price of this firm's product. How much would this firm have to increase its advertising in order to counteract the drop in its competitor's price?.