Which of the following statements is true?

A) If marginal costs are constant, then it is optimal to advertise until the last dollar spent on advertising generates one additional dollar of sales.
B) If the demand curve shifts leftward as the advertising expenditure increases, then the advertising elasticity of demand is positive.
C) If the advertising elasticity of demand declines and consumer demand becomes more price elastic, then the optimal advertising-to-sales ratio declines.
D) If the advertising elasticity of demand is positive, then the demand curve must be upward sloping.

Question

Dylan Webber · Accepted Answer

Final Answer : C, Explanation :  If the elasticity of demand declines, it means that consumers are becoming less sensitive to changes in price and more sensitive to other factors such as brand name recognition or quality. This implies that advertising becomes less effective at increasing sales, and therefore the optimal advertising-to-sales ratio would decline. The other statements are false. A is not necessarily true because the marginal cost of advertising is not the only factor to consider when determining the optimal advertising expenditure. B is false because a leftward shift in the demand curve indicates a decrease in demand, not an increase in elasticity. D is false because an upward-sloping demand curve does not necessarily imply a positive advertising elasticity of demand.

Definitions

Learning Objectives

Learning Objectives

Related questions