If the Wilson Company spends $200,000 on advertising, what is the marginal revenue from an extra dollar of advertising? b. Is $200,000 the optimal amount for the firm to spend on advertising? c. If $200,000 is not the optimal amount, would you recommend that the firm spend more or less on advertising?
The wilson company s marketing manager has determined that the price elasticity of demand for its product equals 2.2. According to studies he carried out, the relationship between the amount spent by the firm on advertising and its sales is as follows:
Advertising Expenditure Sales
$100,000 $1.0 million
200,000 1.3 million
300,000 1.5 million
400,000 1.6 million
a. If the Wilson Company spends 0,000 on advertising, what is the marginal revenue from an extra dollar of advertising?
b. Is $200,000 the optimal amount for the firm to spend on advertising?
c. If $200,000 is not the optimal amount, would you recommend that the firm spend more or less on advertising?
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