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Q3 A company offers ticket promotion and handling services for concerts and sporting events. One of its branch office makes heavy use of spot radio
Q3 A company offers ticket promotion and handling services for concerts and sporting events. One of its branch office makes heavy use of spot radio advertising, with each 30- second ad costing $100. During the past year. the following relation between advertising and ticket sales per event has been observed: Sales (units)=>5,0004+100A4-0.5A4* dSales (units)/0A=100-A Here. A represents a 30-second radio spot ad, and sales are measured in numbers of tickets. The manager for the branch office has been asked to recommend an appropriate level of 1 advertising. In thinking about this problem, the manager noted its resemblance to the optimal resource emplovment problem studied in a managerial economics course. The advertising/sales relation could be thought of as a production function, with advertising as an input and sales as the output. The problem is to determine the profit-maximising level of emplovment for the input, advertising, in this \"production\" system. The manager recognised that a measure of output value was needed to solve the problem. After reflection, he determined that the value of output is $2 per ticket, the net marginal revenue earned by Ticket Services (price minus all marginal costs except advertising). (1). Continuing with the manager's production analogy, what is the marginal product of advertising? (10 points) (2). What is the rule for determining the optimal amount of a resource to employ in a production system? (10 points) (3). Using the rule for optimal resource employment, determine the profit-maximising number of radio ads. (10 peints)
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