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Manages regularly face the choice of increasing advertising expense or reducing price to increase sales in the Oligopoly market structure.

Suppose you have the following information.

• Current product price equal $5.00
• Current sales level equal 45,000 units
• The advertising department expects the next $20,000 in ad spend should increase sales by 5,000 units to 50,000 while maintaining the current price of $5.00.
• The finance department predicts dropping the price by $1.00 will increase sales by 15,000 to 60,000 units next year.
Which action should you take next year (increase advertising or drop price)?

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M942657

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