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    Monopoly & Monopolistic Competition

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    Need help on the following problem. Having difficulty coming up with solutions.


    The Wilson Company's marketing manager has determined that the price elasticity of demand for its product equals -2.2. According to studies he carried out, the relationship between the amount spent by the firm on advertising and its sales is as follows:

    Advertising expenditure Sales
    $100,000 $1.0 million
    200,000 1.3 million
    300,000 1.5 million
    400,000 1.6 million

    a. If Wilson Company spends $200,000 on advertising, what is the marginal revenue from an extra dollar on advertising?
    b. Is $200,000 the optimal amount for the firm to spend on advertising?
    c. If $200,000 is not the optimal amount, would you recommend that the firm spend more or less on advertising?

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    Solution Summary

    Word document contains calculations of marginal revenue and optimal amount of advertising expenses.