You are the manager of Coca-Cola and are discussing with the marketing department the effect of...
You are the manager of Coca-Cola and are discussing with the marketing department the effect of Pepsi on the demand for Coca-Cola. Write out a demand equation for Coca-Cola that shows the effect of Pepsi on the demand for Coca-Cola. Explain the meaning of the coefficient on the price Pepsi and on advertising. Explain why you would spend money on advertising and how this would affect the demand for Coca-Cola. Draw a graph that shows the effect of advertising on the demand for Coca-Cola.
Homework Answers
Ans
Dc=A-bpc+dPp+tA
Here Dc=Demand for Coca cola
A=autonomous consumption
Pc=price of Coca cola. b is coeeficient of demand of Coca cola with respect to its price
Pp is price of pepsi. D is coeeifient of demand with respect to Pepsi. It is positive meaning as price of Pepsi rises demand for Coca cola rises since they are substitutes It shows percentage change in demand for Coca cola as price of price rises
A IS advertising. t is coeeficient of advertising . It shows percentage change in demand of Coca cola as advertising expenditure rises
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