Suppose You Own a Business and Your Own Price Elasticity

question 1

Multiple Choice

Suppose you own a business and your own price elasticity is -2. In addition, suppose your advertising elasticity of demand is 0.50. If your marginal cost per unit is $4, what is your optimal advertising-to-sales ratio?

• A)0.25
• B)0.375
• C)0.625
• D)1.25

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Definitions:

Tax Revenue

Income that is gained by governments through taxation, used to fund public services and government obligations.

Demand Curve

A graphical representation of the relationship between the price of a good and the quantity demanded, typically downward sloping to the right.

Tax

Mandatory monetary contributions or taxes levied by a government on people or organizations to support government spending.

Buyers

Individuals or entities that purchase goods or services in a market.