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Should three peaks lower the price while increasing adv.

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Reference no: EM13208273

The Three Peaks Ski resort has estimated the following weekly demand function for their lift tickets.

Q = 12,500 - 125 P + 75 A
where:

Q = weekly number of lift tickets,
P = price of lift tickets
A = number of newspaper ads per week.

a. The Three Peaks charges $60 per ticket and has 20 advertisement notices in local papers. How many lift tickets do they expect to sell?

b. Keeping the advertisement level the same (at 20 ads), calculate the point (price) elasticity of demand at the above price ($60).

c. Keeping the price at $60, determine the elasticity of demand with respect to advertisement.

d. Now suppose that the manager of the Three Peaks increases the number the newspaper ads to 80 per week. Examine the effect of this change on the price elasticity of demand for lift tickets. Should the Three Peaks lower its price while increasing its advertisement? Explain.

e. Suppose each newspaper ad costs $1200, would you recommend spending more money on advertisement?

Reference no: EM13208273

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