03 Jun Question (20 points) Amazing Foods Frozen Yogurt shops
Question
(20 points) Amazing Foods Frozen Yogurt shops have enjoyed rapid growth in northeastern states in recent years. From the analysis of Amazing’s various outlets, it was found that the demand curve follows this pattern:
Q = 200 – 300P + 120Y + 65T – 250AC + 400AJ
Where:
Q = number of cups served per week
P = average price paid per cup
Y = per capita income in the given market (in thousand $)
1
ECO-6655: Application Problem Set #1, T1-13
Dr. Dominic F. Minadeo
T = average outdoor temperature
AC = Competition’s monthly advertising expenditures (in thousand $)
AJ = Amazing’s own monthly advertising expenditures (in thousand $)
One of the outlets has the following conditions:
P = $1.50; Y= $10,000; T = 60; AC = $15,000; AJ = $10,000
a. Estimate the number of cups served per week by this outlet. Also determine the equation for the outlet’s demand curve. Hint: Be very careful of units! If something is measured in millions, then $10,000,000 = 10 units in the equation, for example.
b. What would be the effect of a $5,000 increase in the competitor’s advertising expenditure? Determine the new demand curve and explain what has occurred.
c. What would Amazing’s advertising expenditure have to be to counteract this effect? Show all calculations and explain briefly.
d. Determine elasticities for every single variable in the equation (ignore the constant). Interpret your answers (say
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