10

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&rsq
uo;s product, the total demand for firm's product will decrease by 3*(500 - 400) = 300 units. S
o, this firm have to increase its advertising by 300/5 = 60 in order to counteract the drop in its compet
itor’s price.
c. Such other variables as change in tastes, popularity of the product, change in consumer's i
ncome might be important in helping estimate the demand.

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