You are the manager of a popular shoe company.You know that the advertising elasticity of demand for your product is 0.15.How much will you have to increase advertising in order to increase demand by 10%?
A)0.02%.
B)38.6%.
C)66.7%.
D)4.3%.

Question

Quizplus · Accepted Answer

We use the formula:
Advertising Elasticity of Demand = % Change in Quantity demanded / % Change in Advertising

Given that Advertising Elasticity of Demand is 0.15 (or 0.15/1), we need to find out the % change in advertising required to cause a 10% increase in demand.

Let's substitute the values in the formula and solve for % Change in Advertising:

0.15/1 = 10% / % Change in Advertising

% Change in Advertising = (0.15/1) * (100/10) = 1.5

Therefore, the shoe company needs to increase their advertising by 1.5 times or 150% (since the initial advertising was considered as 100%) to achieve a 10% increase in demand.

Thus, the answer is C) 66.7%.

You Are the Manager of a Popular Shoe Company