Question

11. A farm commodity group is using generic promotion to promote their product. The Demand and Supply Curves have been estimated by ABC Economic Consulting using data over the time period the farmers have been using the generic promotion. The farmer group wish to know how the promotion has added to their revenues in comparison to their costs. (10 pts) Demand and Supply for a good are: QD=150-6P+.03A QS=100+.6P-.006A Generic Advertising Levels (A) are: Al=$1,000, A2=$1,500 | А Given this information, first equate QD and QS to solve for P in terms of A, then fill in the blanks QD=150 QS=100+.6P Total Additions Additions .6P+.03A .006A Revenues to TR to A P= $1,000 $2,500 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 Are additions to revenues greater than the additions to advertising costs? If you were working for ABC Economic Consulting, how would you advise the farmers group?

Answer 1

: Demand i 20 = 150 - 0:6P + 0.03A suppry : Qs = 100+ 0.6 P 0.006 A Equilibrium: QD : Qs or, 150-0.6 P +0:03 A = 100+ 0.6 PM 0:006A ar, 50 + 0.036 A = 2012 P P = 50 +0.036 A 1'2 With this function the table is completed as: Table -1]

Table 1

A	P	QD	QS	TR	Addition to TR	Addition to A
1000	71.66667	137	137	9818.333
2500	116.6667	155	155	18083.33	8265	1500

In this case, the addition to total revenue is greater than the addition to the cost. The advice is to increase advertising expenditure to increase revenue.