Question
According to a survey of U.S. firms, the advertising elasticity of demand is only about 0.003. Does this indicate that firms spend too much on advertising?
It does not indicate too much is being spent. A 100% increase in advertising would translate into a .3% increase in sales, which could represent a heck of a lot of money.
It does not indicate too much is being spent. A 100% increase in advertising would translate into a .3% increase in sales, which could represent a heck of a lot of money.