aztec enterprises depends heavily on advertising to sell its products. management at aztec is allowed to spend $2million monthly on advertising, but no more than this amount. each month, aztec spends exactly $2million on advertising. what is aztec's elasticity of demand for advertising? can you write the equation for aztec's demand for advertising?
Assuming aztec will always spend $2million, no more no less, The PRICE elasticity of demand would be -1.
P*Q = 2million
Budweiser, Miller and Coors, who together produce 80% of all beer consumed in the US, each spend well over $500 million a year on television advertising campaigns, promoting their beer brands. Do you think these firms would welcome congressional legislation which restricted the amount that any one firm could spend on advertising to $5 million yearly, and thereby allowed them all to reduce their costs dramatically without fear of losing ground to each other? Explain your answer
To calculate Aztec's elasticity of demand for advertising, we need information on the change in quantity demanded of advertising when there is a change in the price (amount spent on advertising).
Given that Aztec spends exactly $2 million on advertising each month, we don't have the necessary data to calculate the elasticity of demand. Typically, elasticity of demand requires the quantity demanded at different price levels to determine the responsiveness of demand to price changes.
However, we can still write the equation for Aztec's demand for advertising based on the given information. Let's denote the quantity demanded of advertising as "Q" and the amount spent on advertising as "P" (in this case, $2 million).
Based on the information provided, we know that Aztec's spending on advertising is fixed at $2 million monthly. Therefore, the equation for demand can be written as:
Q = f(P) = $2 million
This implies that the quantity demanded of advertising by Aztec is fixed at $2 million, regardless of the price.
To calculate Aztec's elasticity of demand for advertising, we need to determine the percentage change in quantity of advertising demanded in response to a percentage change in advertising expenses.
Given that Aztec always spends the exact amount of $2 million on advertising monthly, we can assume that their advertising expenses (P) are constant. Let's denote their advertising quantity (Q) as the number of units they advertise.
The equation for elasticity of demand (E) is as follows:
E = (% change in quantity demanded) / (% change in advertising expenses)
Since the advertising expenses remain constant, the percentage change is zero. Thus, the elasticity of demand for advertising at Aztec Enterprises is undefined (or perfectly inelastic).
Now, to write the equation for Aztec's demand for advertising, we can use the concept of a demand function. However, without further data or information, it is challenging to determine the precise equation. A general equation for the demand for advertising could be:
Q = a * P^b
Where:
Q is the quantity of advertising demanded,
P is the price (advertising expenses),
a is a constant that reflects Aztec's marketing strategy,
b is the elasticity of demand for advertising (in this case, undefined).
It is crucial to note that obtaining actual values for a and b would require additional data and analysis specific to Aztec's market, competitors, and consumer behavior.