Suppose your company produces athletic footwear. Marketing studies indicate that your own price elasticity of demand is

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Suppose your company produces athletic footwear. Marketing studies indicate that your own price elasticity of demand is -3 and that your advertising elasticity of demand is 0.5. You may assume these elasticities to be approximately constant over a wide range of prices and advertising expenses.
a) By how much should the company mark up price over marginal cost for its footwear?
b) What should the company's advertising-to-sales ratio be?
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Microeconomics

ISBN: 978-0073375854

2nd edition

Authors: Douglas Bernheim, Michael Whinston

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