Question

You are the manager of a company. You know that the advertising elasticity if demand for your product is 0.50. By how much will you have to increase advertising spending in order to increase quantity demanded by your customers by 20%?

Answer 1

To increase quantity demanded by 20% with an advertising elasticity of demand of 0.50, advertising spending needs to be increased by 40%.

Step-by-step explanation:

If you know that the advertising elasticity of demand for your product is 0.50 and you want to increase the quantity demanded by your customers by 20%, you can use the advertising elasticity of demand to determine by how much you need to increase your advertising spending. According to the definition of elasticity, a 1% increase in advertising spending would lead to a 0.5% increase in quantity demanded. Therefore, to achieve a 20% increase in quantity demanded, you would need to increase your advertising spending by 40%.