As an owner of a small business, you want to determine the optimal monthly advertising expenditures for the business. Your total monthly cost is TC = 4Q+ 0.0005Q² + A where A is the advertising expenditure. Your marginal revenue from advertising is constant at MRA = $4, and the advertising elasticity of demand is 0.4. Suppose you know the profit maximizing level of output is Q = 12,000 per month. Find the optimal level of advertising expenditure? Use a graph to demonstrate your answer.

As an owner of a small business, you want to determine the optimal monthly advertising expenditures for the business. Your total monthly cost is TC = 4Q+ 0.0005Q² + A where A is the advertising expenditure. Your marginal revenue from advertising is constant at MRA = $4, and the advertising elasticity of demand is 0.4. Suppose you know the profit maximizing level of output is Q = 12,000 per month. Find the optimal level of advertising expenditure? Use a graph to demonstrate your answer.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter14: Pricing Techniques And Analysis

Section: Chapter Questions

Problem 2E: The price elasticity of demand for air travel differs radically from first-class (1.3) to...

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