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 ...

Please note the difference between a School and a School SUBJECT.

Decrease

To determine whether there would be an increase or decrease in revenue and profits, we need to consider the effects of both the price increase and the advertising increase separately.

1. Price Increase:
Since the price elasticity of demand is given as -1.5, we can use the formula for price elasticity of demand:
Elasticity = (% Change in Quantity Demanded) / (% Change in Price)

In this case, we are given that the firm is considering a 4 percent increase in price. Let's assume the current level of quantity demanded as Q0 and the current price as P0. The percentage change in price would be:

% Change in Price = (4 percent) = 0.04

To find the percentage change in quantity demanded, we can multiply the price elasticity (-1.5) by the percentage change in price:

% Change in Quantity Demanded = (-1.5) * (0.04) = -0.06

This means that for every 1 percent increase in price, the quantity demanded would decrease by 0.06 percent. Since the percentage change in quantity demanded is negative, we can conclude that the firm would experience a decrease in quantity demanded.

So, with a 4 percent increase in price, we would expect a decrease in revenue and profits due to the decrease in quantity demanded.

2. Advertising Increase:
Similarly, we can analyze the effect of an 11 percent increase in advertising. The advertising elasticity of demand is given as +0.6, which implies that a 1 percent increase in advertising would result in a 0.6 percent increase in quantity demanded.

% Change in Advertising = (11 percent) = 0.11

To find the percentage change in quantity demanded, we can multiply the advertising elasticity (+0.6) by the percentage change in advertising:

% Change in Quantity Demanded = (+0.6) * (0.11) = +0.066

This means that for every 1 percent increase in advertising, the quantity demanded would increase by 0.066 percent. Since the percentage change in quantity demanded is positive, we can conclude that the firm would experience an increase in quantity demanded.

So, with an 11 percent increase in advertising, we would expect an increase in revenue and profits due to the increase in quantity demanded.

In conclusion, despite the price increase leading to a decrease in quantity demanded and potentially decreasing revenue, the advertising increase would counteract it by increasing the quantity demanded and potentially increasing revenue. The net effect on revenue and profits would depend on the magnitude of these changes and other factors not mentioned