The table above shows the current costs for a firm to advertising on the radio, television, and newspaper.
-Refer to the table above. If at the current advertising level, A = $9,800, B = $15,200, and C = $8,000, to maximize profit, which of the following should the firm do?

Question

Quizplus · Accepted Answer

To maximize profit, the firm should spend more on the medium that has the highest marginal return on investment. Based on the table, spending $1 more on television ads yields an increase in sales by $3, while spending $1 more on radio or newspaper ads yields an increase in sales by only $2. Therefore, the firm should decrease its advertising on the radio and increase its advertising on television, which will increase profits by $1 per dollar spent.

The Table Above Shows the Current Costs for a Firm