Where QdBG is quantity demanded of boardgames. PBG is theprice of boardgames. PP is the average price of puzzles. M isaverage annual household income. Pop is the population. Ad is theannual dollars spent on advertising. R is the cost of capital tothe firm denoted by the average interest rate (in decimal format).Suppose PP = $7, Pop = 1,000,000, M = $60,000, and Ad =$10,000.
a) Calculate the quantity demanded of the boardgames if itsprice is $9.
b) Calculate the POINT price elasticity of demand for theboardgames at this price; Based on your
calculation, is the demand for boardgames inelastic or elasticin this price range?
c) Calculate the POINT cross-price elasticity of demand forpuzzles; Based on your calculation, are puzzles and boardgamesconsidered to be substitutes or complements?
d) Calculate the POINT income elasticity of demand forboardgames; Based on your calculation, are
boardgames considered to be a normal good or inferior good? Anecessity or luxury good?
e) Find the inverse demand function.
f) Find the total revenue function for boardgames: TR=f(Q).
g) At what price and quantity would the boardgames maximizeits monthly revenue? Verify you found
a maximum.
h) Calculate the advertising elasticity of demand.
i. Is the response by consumers elastic or inelastic?
ii. What, if any, change in Total Revenues associated withboardgames occurs due to the change
in advertising?
iii. Is the extra advertising dollars a good investment? Whyor why not? Is there any additional
information you would want to know before deciding toadvertise more or less?
