solution

Since all the Hawkins Company’s costs (other than advertising) are essentially

fixed costs, managers want to maximize total revenue (net of advertising

expenses). According to a regression analysis (based on 124 observations) carried

out by managers,

Q = -23 – 4.1P + 4.2I + 3.1A

where Q is the quantity demanded of the firm’s product (in dozens), P is the

price of the firm’s product (in dollars per dozen), I is per capita income (in

dollars), and A is advertising expenditure (in dollars). a. If the price of the product is $10 per dozen, should managers increase advertising? b. If the advertising budget is fixed at $10,000, and per capita income equals $8,000, what is the firm’s marginal revenue curve?

c. If the advertising budget is fixed at $10,000, and per capita income equals

$8,000, what price should managers charge?