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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 profit maximizing level of advertising? Explain.
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