As an owner of a small business, you want to determine the optimal monthly advertising expenditures for the business. Your total monthly cost is TC = 4Q+ 0.0005Q² + A where A is the advertising expenditure. Your marginal revenue from advertising is constant at MRA = $4, and the advertising elasticity of demand is 0.4. Suppose you know the profit maximizing level of output is Q = 12,000 per month. Find the optimal level of advertising expenditure? Use a graph to demonstrate your answer.

As an owner of a small business, you want to determine the optimal monthly advertising expenditures for the business. Your total monthly cost is TC = 4Q+ 0.0005Q² + A where A is the advertising expenditure. Your marginal revenue from advertising is constant at MRA = $4, and the advertising elasticity of demand is 0.4. Suppose you know the profit maximizing level of output is Q = 12,000 per month. Find the optimal level of advertising expenditure? Use a graph to demonstrate your answer.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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am. 114.
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