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The marketing manager also wants to know how much sales will increase if she increases the...

The marketing manager also wants to know how much sales will increase if she increases the advertising budget by 10%. Compute this from the information given.

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Answer #1

Calculate ∆QXd/∆AX -

∆QXd/∆AX = d(QXd)/dAX = d(20000 - 10PX + 7PY + 0.5M + 250AX)/dAX = 250

Calculate advertising elasticity of demand -

eA = (∆QXd/∆AX) * (AX/QXd)

eA = 250 * (250/45030) = 1.388

The advertising elasticity of demand is 1.388.

Calculate percentage change in sales =

Percentage change in sales = Advertising elasticity of demand * percentage increase in advertising budget

Percentage change in sales = 1.388 * 10 = 13.88

The sales will increase by 13.88 percent.

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