Exam 5: Production and Cost

The Springfield Bank received 1,500 inquiries following its latest advertisement describing its "establish a Certificate of Deposit (CD)-get a free CD (compact disk)" promotion in the Springfield Shopper,a local newspaper.The most recent similar ad in a similar advertising campaign was in the Brockman Business Newsletter.A local business publication generated 500 inquiries.Each ad in the Springfield Shopper costs $500.Each ad in the Brockman Business Newsletter costs $125.Inquiries from both publications have the same success rate in turning inquiries into sales. (a)Assuming that additional ads will generate similar response rates,is Springfield Bank running an optimal mix of ads in the Springfield Shopper and the Brockman Business Newsletter? Why or why not? (b)If you claim that the Springfield Bank is currently running an optimal mix of ads,clearly explain why they are using an optimal mix of ads.If you claim that the Springfield Bank is currently not running an optimal mix of ads,clearly explain how the Springfield Bank can better manage the ads.

A firm that produces widgets must pay a fixed cost of $150.It costs an additional $30 for every widget that they produce.If the market price is $40,how many widgets does the firm have to sell so that it does not incur a loss?