Problem: Ajax, Inc. has hired you to analyze the demand for its line of telecommunications devices in 35 different market areas. The available data set includes observations on the number of thousands of units sold by Ajax per month (Qd), the price per unit charged by Ajax (PX), the average unit price of competing brands (PZ), monthly advertising expenditures by Ajax (A), and average gross sales (in $1,000) of businesses in the market area (I). The demand curve is given below:
Qd = 300 - 6 PX + 2 PZ + 0.04 A + 0.01 I
The Supply curve: Qs = 100+3PX
I. The average values of the independent variables in the data set used to estimate the equation are PZ = $225, A = $11,000, and I = $200,000. Calculate a derived demand function of Ajax's average sales (Qd) as a function of PX.
II. Calculate equilibrium.