A company does $100 million in sales. It has some degree of pricing power in that it
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Question:
A company does $100 million in sales. It has some degree of pricing power in that it sells its output for $10 where it costs it $8 to make. Its advertising is highly effective. For every one percent it increases its advertising budget, its output increases by five percent. Unfortunately, its advertising is very aggressive because it causes its competitors to increase theirs by two percent for every one percent the company increases its own. When its competitors increase their budgets by one percent, it causes problems for the company in that demand for its output falls by two percent. Calculate how much, in dollars, the company should spend on advertising
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