Homework: Chapter 15 Score: 3.5 of 7 pts 8 of 15 (13 complete)HW Sco Text Proble
ID: 1157522 • Letter: H
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Homework: Chapter 15 Score: 3.5 of 7 pts 8 of 15 (13 complete)HW Sco Text Problem 2.6 it expects it can sell at a fixed price of $10 per unit. firm between its advertising expenditures andt nt nk ash l M ailbi Advertising Expenditures (Millions) Quantity Sold At P S1.00 S1.40 S1.80 $2.20 S2.60 5.00 5.50 5.70 5.80 5.85 In economic terms. why might the relationship between advertising and sales look the way it does? The marginal effect of advertising is decreasing due to diminishing marginal returns Assume that the marginal cost of producing this product (not including the advertising costs) is a constant $8 pe mpot Unwa advertising should this firm be doing? This firm shoud spend S[? million on advertising (Enter your response rounded to two decrnal paces) Enter your answer in the answer box and then click Check Answer part remaining Test the hypothesiExplanation / Answer
if the firm is operating in an imperfectly competitive market, then lack of complete information would cause advertising and sales to look they way they do. With greater advertising( which is positively correlated to greater advertising budget), more people become aware of the product being sold by the firm and firm in turn is able to differentiate its product to increase sales.
yes, the firm should advertise till its marginal cost including advertising is equal to its marginal revenue, that is at 5.7 million units.
at this point the firm should be spending 10.26million on advertising (average cost of advertising * quantity of goods sold)
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