The supply and demand for the paper firm is given by:
QS=100P-5000
and
QD=0.5 i + 0.2A-100P+5000
where Q is the quantity per year, P is price, I is income per household, and A is advertising expenditure.
1. If A=$10,000 and I =$25,000, what is the demand curve?
2. Plot the demand curve found in part A with the supply curve, then use the graph to find the equilibrium price and quantity.
3. If consumer incomes increase to $30,000, what will be the new equilibrium price and the new equilibrium quantity?