Question #2001928: Calculation of Elasticities

Question: 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 $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? Explain why?

Solution: The solution consists of 155 words (1 page)
Deliverables: Word Document

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