1-a. How much will net operating income increase (decrease) per month if the monthly advertising budget increases by $8,400 and monthly sales increase by $17,000? 1-b. Should the advertising budget be increased?

a. Net income is decreased by $1,600.

b. Advertising budget should not increased because it is no making enough benefit to increase or stabilize the net income. Net effect of this change is a loss of $1,600.

Explanation:

Current Operating income = ( 3,600 x $95 x 40% ) - $79,000 = $136800 - $79,000 = $57,800

After Increment

Sales  = ( 3,600 x $95 ) + $17,000 = $359,000

Contribution margin = $359000 x 40% = $143,600

Fixed Cost = $79,000 + $8,400 = $87,400

Net Income = $143,600 - $87,600 = $56,200

Net income Change = $56,200 - $57,800 = -$1,600

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answer/// real gdp decreases to y3 and the price level falls to p3;

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