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 percent?
A) 0.02 percent
B) 38.6 percent
C) 66.7 percent
D) 4.3 percent

Question

Quizplus · Accepted Answer

The formula to calculate the change in demand due to a change in advertising expenditure is:
% change in demand = Advertising elasticity of demand x % change in advertising expenditure
Given that the advertising elasticity of demand is 0.15 and we want to increase demand by 10 percent, we can substitute the values and solve for % change in advertising expenditure:
10 = 0.15 x % change in advertising expenditure
% change in advertising expenditure = 10/0.15 = 66.7 percent
Therefore, the company will have to increase advertising by 66.7 percent in order to increase demand by 10 percent.

You Are the Manager of a Popular Shoe Company