A firm has $200,000 to spend on either direct sales or advertising. Suppose further that if the $200,000 is spent on direct sales, it will bring in an accounting profit of $40,000. Instead, the (accounting) profit it could obtain from a $200,000 investment in advertising is $X. Compare the profitability of the two options if (a) X = 50,000, (b) X = 30,000, or (c) X = 40,000.
What will be an ideal response?
If X = 50,000, then economic profit of direct sales is less than zero, so advertising must be a more profitable investment.If X = 30,000, then economic profit is greater than zero, because direct sales, which yields $40,000, is the more profitable investment choice.If X = 40,000, then economic profit is equal to zero, and the two investment options are equally profitable.
You might also like to view...
Assume that the above figure represents the domestic supply and demand for coffee.The domestic price with no trade is represented by $5.50 . The price with free trade is represented by $4.00
Assume that the government places a $1 per pound tariff on imported coffee, which decreases the domestic quantity demanded of coffee by 100 million pounds and increases domestic production by 100 million pounds. Draw the rectangle that would represent the amount of tax revenue that the government would realize from this tax and calculate the dollar figure.
Intraindustry trade is characterized by what two features?
What will be an ideal response?
TANF sets a lifetime cap for benefits at 10 years
a. True b. False Indicate whether the statement is true or false
Which of the following examples would likely have the highest elasticity of demand if the price of the product changed?
a. Jana spends $10,000 of her weekly paycheck of $40,000 on an automobile. b. Roberta spends $400 of her weekly paycheck of $2,000 on a video game player. c. Terence spends $100 of his weekly paycheck of $1,500 on a theater ticket. d. Seo-jun spends $1,500 of his weekly paycheck of $3,000 on a motorcycle.