Suppose a firm expects sales of about $45 million for the coming year. The firm’s marketing department has estimated that a 1 percent increase in advertising would increase sales by about 0.7 percent, and that a 1 percent increase in the firm’s prices would reduce the quantity sold by about 2.8 percent. What is the firm’s price elasticity of demand? Its advertising elasticity of demand? What is the optimal amount for the firm to spend on advertising in the coming year?
Suppose a firm expects sales of about $45 million for the coming year. The firm’s marketing department has estimated that a 1 percent increase in advertising would increase sales by about 0.7 percent, and that a 1 percent increase in the firm’s prices would reduce the quantity sold by about 2.8 percent. What is the firm’s price elasticity of demand? Its advertising elasticity of demand? What is the optimal amount for the firm to spend on advertising in the coming year?
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
Chapter3: Demand Analysis
Section: Chapter Questions
Problem 7E: In an attempt to increase revenues and profits, a firm is considering a 4 percent increase in price...
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Suppose a firm expects sales of about $45 million for the coming year. The firm’s marketing department has estimated that a 1 percent increase in advertising would increase sales by about 0.7 percent, and that a 1 percent increase in the firm’s prices would reduce the quantity sold by about 2.8 percent.
What is the firm’s price elasticity of
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