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A monopolist wants to spend an amount of funds on advertising to maximize profits. The firm produces one type of product and obtains the following
A monopolist wants to spend an amount of funds on advertising to maximize profits. The firm produces one type of product and obtains the following information: 1) A 1% increase in price leads to a 4% decline in quantity demanded; 2) A 1% increase in advertising leads to a 1% increase in quantity demanded.
What is the profit-maximizing advertising-to-revenues ratio in this case?
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