Question

3.Ballreich’s has observed that quantity of values in a town increases from 20000 bags per week to 24000 bags per week where it increases advertising expanding from $32000 to $33000. It has also in the market that the number of sales increases from 12000 to 13000 bags per week when its competitors raise their prices from 3.50 per bag to 3.75 per bag( while their advertising remain consistent)

A. Ballreich’s knows that the price of electricity demand is 4.7 . If Budweiser increased their advertising by 10% and increased prices by 15%. By what percent would the quantity of sales change ?

Short Answer Apply:

Answer 1

Here we have not been given any information regarding the price change by competitors so we expect that

competitors are not changing the price by any percent.

A) We have two factors influencing the sales: 15% increase in own price and 10% increase in advertising

spending. Using the values we find that the advertising elasticity is 6.4

eA = (24000 - 20000)*100/20000 divided by (33000 - 32000)*100/32000 = 6.4. Price elasticity = -4.7.

Final change in sales = 6.4 x 10% + (-4.7) x 15% = -6.5%.

Hence sales drop by 6.5%.