Optimal Input Mix
The First National Bank received 3,000 inquiries following the latest advertisement describing its 30-month IRA accounts in the Boston World, a local newspaper. The most recent ad in a similar advertising campaign in Massachusetts Business, a regional business magazine, generated 1,000 inquiries. Each newspaper ad costs $500, whereas each magazine ad costs $125.
A. Assuming that additional ads would generate similar response rates, is the bank running an optimal mix of newspaper and magazine ads? Why or why not?
B. Holding all else equal, how many inquiries must a newspaper ad attract for the current advertising mix to be optimal?