Question

Which of the following statements describes an inherent weakness in the use of the marginal-analysis model for establishing an advertising budget? A. It is unsuitable as a basis for budgeting only in the case of direct-response advertising. B. It only considers environmental factors that affect the effectiveness of the promotional program. C. The budget is often set according to the FIFO method. D. The budget is determined by management solely on the basis of what is felt to be necessary. E. It assumes that sales are determined solely by advertising and promotion.

Answer 1

Answer:

E. It assumes that sales are determined solely by advertising and promotion.

Explanation:

The marginal-analysis model assesses the incremental benefits of an activity compared to the additional costs incurred by that same activity.  It is a decision-making tool to help maximize potential profits or benefits.

Sales are not determined solely by advertising and promotion.  There are many other factors, including price, demand and supply, the elasticity of the good, the nature of the good, among other factors.  The sales of goods considered to be necessities are not affected much by advertising and promotion, unlike luxury goods, for example.