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40. A corporation spends $5 billion on advertising. If its advertising elasticity is 0.2 and its own price elasticity is -2.0
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Answer #1

We are given

Advertising elasticity of demand=EA=0.20

Price elasticity of demand=Ep=-2

Advertising expenditure=A=$5

Let Total Revenue=TR=X

Firm's advertising expenditure ratio to total revenue should be equal to the minus the ratio of advertising expenditure to total revenue.

So,

(A/X)=-(EA/Ep)

5/X=[0.20/(-2)]]=0.10

X=5/0.1=$50 million

Correct option is

C: $50 million

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