Computing marginal revenue from advertising

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Reference no: EM1370639

The Smith's Company's marketing manager has determine that the price elasticity of demand for its product equals -2.2. According to the studies he has performed, the relationship between the amount spent by firm on advertising and its sales 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 Smith Company spends $200,000 on advertising, find out the marginal revenue from extra dollar of advertising?

B) Is $200,000 the optimal amount for firm to spend on advertising?

C) If $200,000 isn't the optimal amount, would you recommend that the firm spend more or less on advertising?

Reference no: EM1370639

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