A Supplier of Fur Coats Estimates That the Price Elasticity

question 12

Multiple Choice

A supplier of fur coats estimates that the price elasticity of demand for its coats is -3.75.The firm has determined that an additional $100,000 in advertising would generate $275,000 in additional revenues.You would advise the firm to:

• A) advertise, because the marginal revenues are greater than the cost of advertising.
• B) spend only $50,000 on advertising, because the marginal revenue from an additional dollar of advertising is less than $3.75.
• C) abandon the advertising plan, because the demand elasticity is greater than 1 (in absolute value).
• D) abandon the advertising plan, because the marginal revenue from an additional dollar of advertising is less than $3.75.
• E) advertise, because the fur coats are a luxury item.

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Definitions:

Idea Generation

The process of creating, developing, and communicating new concepts or solutions, often an initial step in the creative or innovation process.

Formal Business Plan

A detailed document that outlines the goals, strategies, financial forecasts, and market analysis of a business.

Financial Projections

Estimates of future financial performance of a business, including projected income, revenue, and expenses.

Team

A group of individuals working together towards a common goal, often characterized by collaboration, communication, and collective effort.