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# Answer to Question #47815 in Microeconomics for anand kumar

Question #47815
Case Study
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 = amount of the product demanded
P = price of the product in dollars
A= advertising expenditures in thousands of dollars.
I = income in thousands of dollars
PX = price of some other travel products offered by a competing travel company
Questions:
a. Calculate the amount demanded for this product using the following data:
P = $400 A=$20,000
GM04/July 2014 Page 2/5
I = $15,000 PX =$500 (5)
b. Suppose the competitor reduced the price of its travel products to $400 to match the price of this firmâ€™s product. How much would this firm have to increase its advertising in order to counteract the drop in its competitorâ€™s price? Would it be worth it for them to do so? Explain. (10) c. What other variables might be important in helping estimate Expert's answer Q = 1,500 + 4P + 5A+ 10I +3PX a. Calculate the amount demanded for this product using the following data: P =$400, A= $20,000, I =$15,000, PX = $500 Q = 1,500 - 4*400 + 5*20,000 + 10*15,000 + 3*500 = 251,400 units b. If the competitor reduced the price of its travel products to$400 to match the price of this firm&rsquo;s product, the total demand for firm&#039;s product will decrease by 3*(500 - 400) = 300 units. So, this firm have to increase its advertising by 300/5 = 60 in order to counteract the drop in its competitor&rsquo;s price.
c. Such other variables as change in tastes, popularity of the product, change in consumer&#039;s income might be important in helping estimate the demand.

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Assignment Expert
20.10.14, 20:22

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MADHURENDRA
20.10.14, 09:06

because economic of scale it is sometimes more cost effective for a firm to operate a large plant at less them maximum efficiency then small plant at maximum efficiency do you agree with this statement and explain

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