The manager of a firm in a monopolistically competitive industry is giving some thought to two important decisions she must make. She knows that: • A typical firm in her industry has an own-price elasticity of demand of -2.5 • The advertising elasticity of demand for her firm's product is 0.7 • She pays her supplier $30 for each unit of the product her firm sells to consumers • Her firm generates annual revenue of $200,000 Based only on this information: a) What is the profit-maximizing price for her firm's product? b) What is the optimal level of annual advertising expenditure? (

The manager of a firm in a monopolistically competitive industry is giving some thought to two important decisions she must make. She knows that: • A typical firm in her industry has an own-price elasticity of demand of -2.5 • The advertising elasticity of demand for her firm's product is 0.7 • She pays her supplier $30 for each unit of the product her firm sells to consumers • Her firm generates annual revenue of $200,000 Based only on this information: a) What is the profit-maximizing price for her firm's product? b) What is the optimal level of annual advertising expenditure? (

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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