The Thompson Textile Company has asked you for advice as to the optimality of its advertising policy with respect to one of its products, product X. The following data are supplied:

(a) Is Thompson’s advertising budget for product X at the profit-maximizing level?

(b) If not, can you say how much more or less it should spend on advertising? Discuss all rele¬ vant issues and qualifications you think are important.

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Sales (units) Advertising elasticity of demand Price per unit Marginal cost per unit is constant at Advertising budget for product X 282,500 2.50 $ 2.00 $ 1.00 $ 56,000