The ABC Company estimates that a newspaper advertising campaign would cost $25,000 and would generate $35,000 in new revenues.The firm should begin this campaign as long as:

Question

Quizplus · Accepted Answer

The decision to begin the newspaper advertising campaign should be based on the price elasticity of demand. If the demand is relatively inelastic, meaning a small increase in price results in only a small decrease in quantity demanded, then the campaign would likely result in a significant increase in revenue. On the other hand, if the demand is relatively elastic, meaning a small increase in price results in a large decrease in quantity demanded, then the campaign would not be worth the cost. Therefore, the firm should begin the campaign only if the absolute value of the price elasticity of demand is at least 1.4, which indicates a sufficiently inelastic demand for the product.

The ABC Company Estimates That a Newspaper Advertising Campaign Would