The wilson company's marketing manager has determined that the price of elasticity of demand for its product equals -2.2. According to studies she carried out, the relationship between the amount spent by the firm on advertising and its sales is as follows:
Advertising Expediture Sales
$100,000 1.0 mil
200.000 1.3 mil
300,000 1.5 mil
400,000 1.6 mil
If the wilson company spends $200,000 on advertising, what is the marginal revenue from an extra dollar of advertising?
Is $200,000 the optimal amount for the firm to spend on advertising?
If $200,000 is not the optimal amount, would you recommend that the firm spend more or less on advertising?