Question: xyz manufacturing enjoys a 4 share of a total market...

XYZ Manufacturing enjoys a 4% share of a total market of 75000 emergency power generators. XYZ offers wholesalers receive 25% and retailers receive a 25% margin on a retail price of $2,000 per generator. The company estimates that variable production costs amount to $785 per generator and fixed manufacturing costs total $260,000 per year. In addition, shipping and packaging costs of $40 per unit must be paid by XYZ. Management costs are $85,000 and the annual advertising budget is $80,000. The company employs one sales representative at a salary of $60,000 per year.

1. The firm's vice-president for marketing estimates XYZ can sell 4% more generators than it does presently by increasing its advertising budget from 80,000 to $100,000. Alternatively, if the advertising budget is reduced by $20,000, he expects to sell 75 fewer units. Should XYZ raise or lower its advertising budget? Explain your answer.