Jordan Enterprises has estimated the contribution margin (P MC)/P for its Air Express model of basketball

Question:

Jordan Enterprises has estimated the (P – MC)/P for its Air Express model of basketball shoes to be 40 percent. Based on market research and past experience, Jordan estimates the following relationship between the sales for Air Express and advertising/promotional outlays:
ADVERTISING/PROMOTIONAL
OUTLAYS SALES REVENUE
$500,000 ............. $4,000,000
600,000 ............. 4,500,000
700,000 ............. 4,900,000
800,000 ............. 5,200,000
900,000 ............. 5,450,000
1,000,000 ............. 5,600,000
a. What is the marginal revenue from an additional dollar spent on advertising if the firm is currently spending $1,000,000 on advertising?
b. What level of advertising would you recommend to Jordan’s management?

Contribution Margin
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...