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17 June, 03:02

ou are the manager of a popular hat company. You know that the advertising elasticity of demand for your product is 0.25. How much will you have to increase advertising in order to increase demand by 5 percent?

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Answers (2)
  1. 17 June, 03:14
    0
    20%

    Explanation:

    Given that

    Advertising elasticity of demand = 0.25

    Quantity demanded = 5% increase

    Recall that

    Elasticity = change in demand/change in advertising

    That is

    Change in advertising = Change in demand / elasticity of production

    Therefore, change in advertising

    = 5/0.25

    = 20%

    Advertising must increase by 20% in order to increase demand by 5%
  2. 17 June, 03:26
    0
    Increase the advertising by 20% in order to increase demand by 5%

    Explanation:

    Demand for a product is elastic when a change in price causes change in the demand for that product.

    When the change in price doesn't change the demand of the product then the demand for the product is inelastic.

    The elasticity of demand is calculated

    Elasticity of demand = Change in demand / Change in advertising

    Change in advertising = Change in demand/Elasticity of demand

    We want to increase the demand by 5% and the elasticity of demand is 0.25

    Change in advertising = 0.05/0.25

    Change in advertising = 0.20*100%

    Change in advertising = 20%

    Therefore, we have to increase advertising by 20% in order to increase demand by 5%
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