Consider the market for branded designer dog tags. Economic consultants have estimated a linear approximation to the market demand curve: QD(P) = 120 - 30*P, where the intercept and slope terms are in millions. The industry association, which coordinates the marketing efforts of the firms in the market, is considering a 10% increase in its marketing efforts from $40MM to $44MM. For the campaign to be successful it must increase revenues by at least $8MM given the costs of production. Assume that the current price of $1 per unit would be unlikely to change in reaction to the marketing efforts.
a. To make the marketing campaign worthwhile, what is the smallest magnitude that the advertising elasticity of demand could be?
b. How might one obtain information on what the advertising elasticity of demand actually is?
Consider the market for branded designer dog tags. Economic consultants have estimated a linear approximation to the market demand curve: QD(P) = 120 - 30*P, where the intercept and slope terms are in millions. The industry association, which coordinates the marketing efforts of the firms in the market, is considering a 10% increase in its marketing efforts from $40MM to $44MM. For the campaign to be successful it must increase revenues by at least $8MM given the costs of production. Assume that the current price of $1 per unit would be unlikely to change in reaction to the marketing efforts.
a. To make the marketing campaign worthwhile, what is the smallest magnitude that the advertising elasticity of demand could be?
b. How might one obtain information on what the advertising elasticity of demand actually is?
