You interview with an athletic footwear manufacturer that has annual advertising expenditures of $32 million and total sales revenue of $100 million, and the firm selects the profit maximizing level of advertising expenditures. If the advertising elasticity of demand is 0.4, then you know that "Rule of Thumb for Advertising" implies that the demand for the firm's products is:

A) inelastic.
B) unit elastic.
C) elastic.
D) zero.

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Alexa Warady · Accepted Answer

Final Answer : C, Explanation :  According to the Rule of Thumb for Advertising, if the advertising elasticity of demand is between 0 and 1, the demand is elastic. In this case, the advertising elasticity of demand is 0.4, which is between 0 and 1, so the demand is elastic.

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