Consider a break-even model for manufacturing a certain product, with a fixed cost is $12,000, a variable cost of $13.50, and a price of $15.75. The marketing department department has determined that spending an additional $500 on advertising will increase the sales volume by 200 units.

What is your recommendation for the company? Should the company spend the above amount on advertising?

The available information is insufficient for making a decision.

Yes - the additional units sold will generate enough profits to cover the advertising cost.

No - the additional units sold will not generate enough profits to cover the advertising cost.

No; selling less products will reduce the costs; and consequently will increase the profits.

Yes; selling more products is always a preferred strategy.