Manages regularly face the choice of increasing advertising expense or reducing price to increase sales in the Oligopoly market structure.
Suppose you have the following information.
• Current product price equal $5.00
• Current sales level equal 45,000 units
• The advertising department expects the next $20,000 in ad spend should increase sales by 5,000 units to 50,000 while maintaining the current price of $5.00.
• The finance department predicts dropping the price by $1.00 will increase sales by 15,000 to 60,000 units next year.
Which action should you take next year (increase advertising or drop price)?