What is the profit maximizing level of advertising

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Smith Corp. has determined that its contribution margin, (P - MC)/P, is 40%. A recent market research study found the following relationship between adverting outlays and sales revenue. Advertising Outlays Gross Revenues from Sales $500,000 $4,000,000 $600,000 $4,500,000 $700,000 $4,900,000 $800,000 $5,200,000 $900,000 $5,420,000 $1,000,000 $5,600,000 a. What is the contribution to profits from increasing advertising sales by $1 if Smith Corp. is currently spending between $500,000 and $600,000 on advertising? b. What is the profit maximizing level of advertising?

Reference no: EM13214165

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