Question: Jordan Enterprises has estimated the contribution margin (P MC)/P for its Air Express model of basketball shoes to be 40 percent. Based on market

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?

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