| Abstract: | This paper considers an optimal control problem with two state variables for the dynamics of the Nerlove—Arrow advertising model. The optimal control is the rate of advertising expenditure required to maximize the present value of net profit streams over an infinite horizon subject to a replenishable budget. It is shown that an equilibrium level of advertising exists in all possible cases. It is interesting to note that this level happens to be non-singular in some cases. Also shown is the optimal transient approach to these equilibrium levels. |
