Company Y is a monopoly industry. Its contribution margin is estimated at 20% (P

Question

Company Y is a monopoly industry. Its contribution margin is estimated at 20% (P-MC)/P = 0.2). From past experience, the owner has determined the following relationship exists between expenditures on advertising and total sales:
Advertising...................Sales Revenues
$0..................................$90,000
$1,000.........................$100,000
$2,000.........................$109,000
$3,000.........................$117,000
$4,000.........................$124,000
$5,000.........................$130,000
$6,000.........................$135,000
$7,000.........................$139,000
$8,000.........................$142,000
$9,000.........................$144,000
$10,000........................$145,000
$11,000........................$145,000

What is the optimal level of advertising?

Explanation / Answer

$4,000.........................$124,000

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