Clark PhD Spring Tertl 2010 1 A firm is considering an adver

Clark, Ph.D Spring Tertl, 2010 1. A firm is considering an advertising campaign that yields $120 one year from now, to duint for $100 spent now. Should the fim undertake the advertising campaign? Why, or why Calculate the present value for r-15%,-20% and 25%) 2. A firm\'s revenue and cost functions are TR=4Q MR = 4 TC 0,04Q-090+ 100+5 MC = 0.12Q, 1.8Q + 10 A. Determine the best level of output. B. Determine the total profit of the firm at its best level of output. Hint: From the TC function we see that the total fixed cost of the firm is 5. Should the firm produce or shut down?) 3. You are told that the price elasticity of demand for automobiles is -1.2, while the income elasticity of demand is 3.0. Current sales are 8 million cars. A. If automakers increase the average price of cars by 5 percent next year, and consumers\" disposable income rises by 3 percent, how many cars do you expect automakers to sell next year? B. Given that consumers\' disposable income rises by 3 percent next year, by how much should automakers increase the price of cars if the want to increase sales by 5 percent next year? (Hint: In both Part A and Part B, the total effect is the sum of the price and income effect on sales.) 4. The demand for Kellogg\'s Rice Krispies (Qx) depends on its own price (Px), personable income (D, the price of a competitive brand (Px), the price of milk (Ps) and advertising expenditures of Kellogg\'s Rice Krispies (A). gives this estimated equation for the demand for Kellogg\'s Rice Regression analysis Krispies: Ox 1.0-2.0px + 1.51 + 0.8PY-3.0 PM + 1.0A

Solution

Can answer only four parts according to chegg policy policy

A present value at 15%=120/(1+0.15)=104.36.since present value is greater than 100 advertisement should be given green signal

B present value at 20%= 120/(1+0.2)=100.advertisement can be taken or can\'t be undertaken since there is no effect as revenue will equal benefit I. E 100=100

C present value at 25%=120/(1+0.25)=96.since it is less than 100 advertisement should not be undertaken

3 A due to price effect sales will fall by 5(1.2)=6%=6% of 8 million=480000

Due to income effect demand will rise by 3(3)=9%=9% of 9million=810000

So total cars that will be sold =8000000-480000+810000=8330000