Please show work and thank you. The following estimates have been obtained for t
ID: 1143008 • Letter: P
Question
Please show work and thank you.The following estimates have been obtained for the market demand for cereal: LnQ=9.01-0.68lnP+0.75LA-1.3LNM where Q is the quantity cereal, P is the price of cereal, A is the level of advertising, and M is income. Based on this information, determine the effect on the consumption of cereal a. A 10% reduction in the price of cereal b. A 8% increase in income c. A 10% reduction in cereal advertising
Please show work and thank you.
The following estimates have been obtained for the market demand for cereal: LnQ=9.01-0.68lnP+0.75LA-1.3LNM where Q is the quantity cereal, P is the price of cereal, A is the level of advertising, and M is income. Based on this information, determine the effect on the consumption of cereal a. A 10% reduction in the price of cereal b. A 8% increase in income c. A 10% reduction in cereal advertising
The following estimates have been obtained for the market demand for cereal: LnQ=9.01-0.68lnP+0.75LA-1.3LNM where Q is the quantity cereal, P is the price of cereal, A is the level of advertising, and M is income. Based on this information, determine the effect on the consumption of cereal a. A 10% reduction in the price of cereal b. A 8% increase in income c. A 10% reduction in cereal advertising
Explanation / Answer
a) A 5% , REDUCTION IN PRICE OF CEREAL WILL INCREASE THE CONSUMPTION OF CEREAL , AS PRICE AND QTY DEMANDED ARE INVERSELY RELATED.
B) AS INCOME AND CONSUMPTION(QTY) ARE INVERSELY RELATED , IMPLYING CEREAL IS AN INFERRIOR GOOD. A 4% increase in income , would lead to fall in consumption of cereal.
c) AS AVDERTISING AND CONSUMPTION ARE POSITIVELY RELATED , A 20% REDUCTION IN CEREAL ADVERTISING WOULD LEAD TO FALL IN CONSUMPTION .