A Supplier of Fur Coats Estimates That the Price Elasticity

Multiple Choice

A supplier of fur coats estimates that the price elasticity of demand for its coats is -3.75.The firm has determined that an additional $100,000 in advertising would generate $275,000 in additional revenues.You would advise the firm to:

A) advertise, because the marginal revenues are greater than the cost of advertising.
B) spend only $50,000 on advertising, because the marginal revenue from an additional dollar of advertising is less than $3.75.
C) abandon the advertising plan, because the demand elasticity is greater than 1 (in absolute value) .
D) abandon the advertising plan, because the marginal revenue from an additional dollar of advertising is less than $3.75.
E) advertise, because the fur coats are a luxury item.