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    Aztec Enterprises - Elasticity of Demand

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    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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    Solution Preview

    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

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