Use the following statements to answer this question.
I. To maximize profit, a firm will increase its advertising expenditures until the last dollar of advertising generates an additional dollar of revenue.
II. The full marginal cost of advertising is the sum of the dollar spent directly on advertising and the marginal production cost that results form the increased sales that advertising brings about.
A) Both I and II are true.
B) I is true, and II is false.
C) I is false, and II is true.
D) Both I and II are false.

Question

Quizplus · Accepted Answer

Statement I is false because a firm will increase advertising expenditures until the marginal revenue from advertising equals the marginal cost, not just the last dollar generating an additional dollar of revenue. Statement II is true as it correctly describes the full marginal cost of advertising.

Use the Following Statements to Answer This Question