A company that manufactures designer jeans is contemplating whether to increase its advertising budget by $1 million for next year. If the expanded advertising campaign is successful, the company expects sales to increase by $1.6 million next year. If the advertising campaign fails, the company expects sales to increase by only $400,000 next year. If the advertising budget is not increased, the company expects sales to increase by $200,000. Identify the actions in this decision-making problem.

Question

Quizplus · Accepted Answer

The company should increase its advertising budget by $1 million because the potential increase in sales ($1.6 million) is greater than the cost of the advertising. Not increasing the budget would only result in a $200,000 increase in sales, which is significantly less. There are only two choices in this decision-making problem - increase the budget or do not increase - and the company should choose to increase the budget.

A Company That Manufactures Designer Jeans Is Contemplating Whether to Increase