Based on Thomas (1971). A toy company produces toys at two plants and sells them in three regions. Each plant can produce up to 4500 units. Each toy sells for $30, and the cost of producing and shipping a toy from a given plant to a region is given in the same file. The company can advertise locally and nationally. Each $1 spent on a local ad raises sales in a region by 0.3 units, whereas each $1 spent advertising nationally increases sales in each region by 0.2 units. a. Determine how the company can maximize its profit. b. If sales stimulated by advertising exhibits diminishing returns, how would you change your model?
Based on Thomas (1971). A toy company produces toys at two plants and sells them in three regions. Each plant can produce up to 4500 units. Each toy sells for $30, and the cost of producing and shipping a toy from a given plant to a region is given in the same file. The company can advertise locally and nationally. Each $1 spent on a local ad raises sales in a region by 0.3 units, whereas each $1 spent advertising nationally increases sales in each region by 0.2 units. a. Determine how the company can maximize its profit. b. If sales stimulated by advertising exhibits diminishing returns, how would you change your model?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Based on Thomas (1971). A toy company produces toys at two plants and sells them in three regions. Each plant can produce up to 4500 units. Each toy sells for $30, and the cost of producing and shipping a toy from a given plant to a region is given in the same file. The company can advertise locally and nationally. Each $1 spent on a local ad raises sales in a region by 0.3 units, whereas each $1 spent advertising nationally increases sales in each region by 0.2 units.
a. Determine how the company can maximize its profit.
b. If sales stimulated by advertising exhibits diminishing returns, how would you change your model?
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