Problem: Gobi Inc. has sales of $40,000,000. Contribution margin 40%, fixed costs $3,000,000, variable costs per unit $12. Company considering two different strategies for increasing profits:
1. Spend $2,000,000 in advertising; results expected to increase sales by 25%
2. Reduce price by 20%; price-demand elasticity is -3.0
Which of two strategies will generate highest overall profits?