Gobi Inc. has sales of $40,000,000. The contribution margin is 40% and the fixed costs are $3,000,000. The variable cost per unit is $12. The company is considering two different strategies for increasing their profits: 1.Spend $2,000,000 in advertising; the results is expected to increase the company’s sales by 25% 2.Reduce the price by 20%; the price-demand elasticity is 3.0 Which of the two strategies will generate the highest overall profits? Show all calculations!I think I have strategy 1 figured out (see attached). However, I am at a loss for strategy #2. Any advice would be greatly appreciated!
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