Total marketing effort is a term used to describe the critical decision factors that affect demand: price, advertising, distribution, and product quality. Let the variable x represent total marketing effort. A typical model that is used to predict demand as a function of total marketing effort is
D = axb
Suppose that a is a positive number. Different model forms result from varying the constant
b. Sketch the graphs of this model for b = 0, b = 1, 0 6 b 6 1, b 6 0, and b 7 1. What does each model tell you about the relationship between demand and marketing effort? What assumptions are implied? Are they reasonable? How would you go about selecting the appropriate model?