In 2011, First National Bank received 3,200 inquiries due to its monthly adverti
ID: 1212246 • Letter: I
Question
In 2011, First National Bank received 3,200 inquiries due to its monthly advertisement in the local newspaper describing its 30-month CD accounts. In the same period, the bank’s monthly ads in a regional business magazine generated 1,000 inquiries. The newspaper ads cost $400 whereas the business magazine ads costs $120
A. Assuming additional ads would generate similar response rates, should the bank continue running its current mix of newspaper and magazine ads? Why or why not? If not, how should it adjust?
B. The next year, the bank decided to spend $175 on magazine ads and $350 on newspaper ads. The newspaper ads generated 2,800 inquiries while the magazine ads generated 1,400 inquiries. Assuming additional ads would generate similar response rates, is the bank running an optimal mix of newspaper and magazine ads? Why or why not?
Explanation / Answer
A) Marginal inquiries for newspaper = 3200/400=8 inquiry/$
Marginal inquiries for magzines = 1000/120=25/3 inquiry/$
So marginal return for magzines is more so bank should invest more in advertisement in magzine and less in newspaper
B) Marginal inquiries for newspaper = 2800/350=8 inquiry/$
Marginal inquiries for magzines = 1400/175=8 inquiry/$
Bank is running optimal mix as marginal inquiries are same for both
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