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Aztec Enterprises - Elasticity of Demand

Text Problem:
Aztec Enterprises depends heavily on advertising to sell its products. Management at Aztec is allowed to spend $2 million monthly on advertising, but no more than this amount. Each month, Aztec spends exactly $2 million on advertising. What is Aztec's elasticity of demand for advertising? Can you write the equation for Aztec's demand for advertising?

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The Demand Function is very simple: D = 2million/Price

We are going to calculate the price elasticity of demand:

Price elasticity of demand: = (dQ / dP)*(P/Q)

This means we have to calculate dQ/dP (ie, the derivative ...

Solution Summary

Answers the question:

Aztec Enterprises depends heavily on advertising to sell its products. Management at Aztec is allowed to spend $2 million monthly on advertising, but no more than this amount. Each month, Aztec spends exactly $2 million on advertising. What is Aztec's elasticity of demand for advertising? Can you write the equation for Aztec's demand for advertising?

$2.19