We May Be Tempted to Determine the Optimal Level of Advertising

question 74

Multiple Choice

We may be tempted to determine the optimal level of advertising expenditures at the point where the last dollar spent on advertising generates an additional dollar of sales revenue (i.e, the marginal revenue of advertising equals one) . In general, this rule will not allow the firm to maximize profits because it ignores the:

• A) price elasticity of demand.
• B) marginal cost of additional sales generated by the advertising.
• C) advertising-to-sales ratio.
• D) fixed costs of advertising.

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Definitions:

Depreciation Expense

The allocation of the cost of a tangible asset over its useful life, reflecting the asset's consumption, wear, and tear or obsolescence.

Fixed Assets

Tangible assets purchased for long-term use and not likely sold in the normal course of business, such as buildings, machinery, and equipment.

Long-Lived Assets

Assets that provide economic benefits to a business over a prolonged period, typically more than one year, such as buildings, machinery, and equipment.

Fixed Assets

Enduring assets with physical presence utilized in business activities, not foreseen to be liquidated or changed to cash within twelve months.