Please show all work and answer all questions What price should be charges The W

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Please show all work and answer all questions

What price should be charges The Wilson Company's marketing manager has determined that the price elasticity of demand for its product equals -2.2. According to studies she carried out, the relationship between the amount spent by the firm on advertising and its sales is as follows: If the Wilson Company spends $200,000 on advertising, what is the marginal revenue from an extra dollar of advertising? Is $200,000 the optimal amount for the firm to spend on advertising? If $200,000 is not the optimal amount, would you recommend that the firm spend more or less on advertising?

Explanation / Answer

A. Sales increased $300,000 for an advertising increase of $100,000. So every dollar spent caused three dollars increase in revenue.

B. No, $300,000 would be better, as the margin is lower, but there is still a net gain in revenue. A $100,000 investment in more advertising causes $200,000 in sales.

C. Not applicable

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