Your car wash company is advertising on local radio, on local television, and via direct mail. You
believe that a radio campaign raises your gross profit by $250, a television campaign raises it by
$360, and a direct mail campaign raises it by $100. The cost of a radio campaign is $125, the cost of
a television campaign is $60, and the cost of a direct mail campaign is $100.
If you cannot change your total advertising budget, should you reallocate your spending? If yes,
explain how. If no, explain why not
A. Your current spending is not optimal because your marginal benefit from each type of
advertising is not equal to the marginal cost. You definitely should increase spending on radio
campaigns and reduce it on direct mail campaigns.
B. Your current spending is not optimal because your marginal benefit from each type of
advertising is not equal to the marginal cost. You definitely should increase spending on radio
campaigns and reduce it on TV campaigns
C. Your current spending is not optimal because your marginal benefit from each type of
advertising is not equal to the marginal cost. You definitely should increase spending on TV
campaigns and reduce it on direct mail campaigns.
D. Your current spending is optimal because your marginal benefit from each type of advertising
is equal to the marginal cost. You should not reallocate your spending on advertisements