Pretty Polly produces dresses for little girls. At its current advertising level, Pretty Polly's marginal cost of advertising is $500,000 and their marginal benefit is $750,000. Which of the following is true?

Question

Quizplus · Accepted Answer

At the current advertising level, Pretty Polly is experiencing a positive net benefit of $250,000 ($750,000 in marginal benefit minus $500,000 in marginal cost). Increasing advertising would lead to an even higher net benefit, as the marginal benefit is greater than the marginal cost. Therefore, the firm should increase the amount of advertising to increase its net profit.

Pretty Polly Produces Dresses for Little Girls