Suppose the demand for X is given by Qxd 100 2Px 4PY 10M

Suppose the demand for X is given by Qxd 100 2Px + 4PY + 10M + 2A, where PX represents the price of good X, Py ?s the price of good Y, M is income and A is the amount of advertising on good X. If advertising on good X increases by $10,000, then the demand for X will Select one a. decrease by $20,000. b. increase by S100,000. c. increase by $20,000 d. decrease by S100,000 O

Solution

Answer is c. Increase by $ 20000.

Explanation:

The advertisement is having a positive function of 2A on demand function, which means that if the advertisement increase by $1 the demand increase two times i.e. $ 2.

Therefore, for increase in $10000 of advertisement cost, there is a increase in $20000 demand.