Advertising elasticity is again, less than one and positive (+0.70) implying that demand is inelastic and an
increasing function of advertising i.e. an increase in advertising increases demand but less than
proportionately; overall, revenue is expected to increase.
Advertising being the whole process or set of informative, educative, entertaining and persuasive
promotional activities aimed at largely influencing consumer perception and demand, the managing
Director?s contemplation of a moderate increase in the advertising budget would be a good idea if
suchan increase is commensurate with increase in revenue: assuming that other factors are held constant
Where X>Y and price is low the advertising budget should not be increased since the quantity
demanded increases by a smaller proportion (which when multiplied by a lower price gives a relatively
lower revenue).
Wilfykil answered the question on
February 4, 2019 at 13:47