Joy's Frozen Yogurt shops have enjoyed rapid growth in northeastern states in recent years. From the analysis of Joy's various outlets, it was found that the demand curve follows this pattern:
Q = 200 - 300P + 120I + 65T - 250Ac + 400 Aj where
Q = number of cups served per week,
P = average price paid for each cup,
I = per capita income in the given market (thousands),
T = average outdoor temperature,
Ac = competition's monthly advertising expenditures (thousands) and
Aj = Joy's own monthly advertising expenditures (thousands)
One of the outlets has the following conditions: P=1.50, I=10, T=60, Ac=15, Aj=10.
1. Which of the following represents the demand curve for this market?
Qd = 200 - 300P
Qd = 4800 - 300P
Qd = 5100 - 300P
Qd = 5550 - 300P
2. What will be the effect of a $5 thousand increase in the competitor's advertising expenditure?
Quantity demanded would increase by $5000.
Quantity demanded would decrease by $5000.
Quantity demanded would increase by $1250.