You have been hired to market a new music recording that is expected to have target sales of $20 million for the coming year.
The marketing department has estimated that a 1% increase in advertising the recording would increase the recordings sold by about 0.5% (i.e., the advertising elasticity is 0.5) and that a 1% increase in the price of a recording would reduce the number sold by about 2% (i.e., the absolute value of the price elasticity of demand is 2).
To maximize profits, how many millions of dollars should be spent on advertising the recording in the coming year?
