Marginal Analysis of setting advertising budget

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As advtg/ promotional expenditure increases, sales & gross margin also increase to a point, then they level off.

Using this theory to establish its budget, a firm would continue to spend advertising/promotional budget as long as  the marginal revenues created by these expenditures exceed the incremental advertising /promotional costs.

 

 

If the sum of advertising/promotional budget  exceeded the revenues they generated, one will conclude the appropriations were too high and scale down the budget.

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