A Company That Manufactures Designer Jeans Is Contemplating Whether to Increase

question 12

Multiple Choice

A company that manufactures designer jeans is contemplating whether to increase its advertising budget by $1 million for next year.If the expanded advertising campaign is successful,the company expects sales to increase by $1.6 million next year.If the advertising campaign fails,the company expects sales to increase by only $400,000 next year.If the advertising budget is not increased,the company expects sales to increase by $200,000.Identify the actions in this decision-making problem.

• A)Two choices: (1)increase the budget and (2)do not increase the budget.
• B)Two possibilities: (1)campaign is successful and (2)campaign is not successful.
• C)Four consequences resulting from the Increase/Do Not Increase and Successful/Not Successful combinations.
• D)The increase in sales dollars next year.

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Definitions:

Market Equilibrium

Market equilibrium is a condition where the quantity of a product supplied is equal to the quantity demanded, leading to a stable market price for the product.

Incidence of a Tax

The incidence of a tax refers to the distribution of the tax's economic burden among different stakeholders, such as consumers and producers.

Elasticity

A measure of how much the quantity demanded or supplied of a good responds to a change in price.

Price Ceiling

A legally imposed maximum price on goods or services, intended to keep prices affordable for consumers.