In attempt to increase revenue and profits, a firm is considering a 4 percent increase in price and an 11 percent increase in advertising. If the price elasticity of demand is -1.5 and the advertising elasticity of demand is +0.6 would you expect an increase or decrease in total revenue?

To determine whether there will be an increase or decrease in total revenue, we need to understand how changes in price and advertising affect the demand for the firm's product. Let's break it down step by step:

1. Price Elasticity of Demand: The price elasticity of demand measures the responsiveness of quantity demanded to changes in price. A price elasticity of demand of -1.5 indicates that demand is relatively elastic, meaning that a percentage change in price will result in a larger percentage change in quantity demanded.

2. Advertising Elasticity of Demand: The advertising elasticity of demand measures the responsiveness of quantity demanded to changes in advertising expenditure. A positive advertising elasticity of demand of +0.6 indicates that demand is relatively elastic, meaning that a percentage increase in advertising will result in a smaller percentage increase in quantity demanded.

Now let's analyze the effects of the proposed changes in price and advertising:

- Price Increase: A 4 percent increase in price is expected to reduce the quantity demanded by a larger percentage due to the price elasticity of demand being -1.5. As a result, the firm will likely experience a decrease in quantity demanded.

- Advertising Increase: An 11 percent increase in advertising is expected to increase the quantity demanded, but by a smaller percentage due to the advertising elasticity of demand being +0.6. While advertising can raise awareness and attract customers, the overall effect on quantity demanded is relatively smaller.

Combining these effects:

Since the price increase is expected to decrease quantity demanded by a larger percentage than the advertising increase can compensate for, we can expect the total revenue to decrease. This is because the decrease in quantity demanded resulting from the price increase outweighs the increase in quantity demanded resulting from the advertising increase.

Therefore, with the given price elasticity of demand and advertising elasticity of demand, we would expect a decrease in total revenue if the firm proceeds with a 4 percent increase in price and an 11 percent increase in advertising.