The advertising manager for Roadside Restaurants,Inc.needs to decide whether to spend this month's budget for advertising on print media,television,or a mixture of the two.Her goal is to minimize the costs associated with reaching her audience.She estimates that the cost per thousand "hits" (readers or viewers)will vary depending upon the success of the new cable television network she plans to use,as follows: For what range of probability that the new cable network will be successful will she select the mixed media strategy?

Question

The advertising manager for Roadside Restaurants,Inc.needs to decide whether to spend this month's budget for advertising on print media,television,or a mixture of the two.Her goal is to minimize the costs associated with reaching her audience.She estimates that the cost per thousand "hits" (readers or viewers)will vary depending upon the success of the new cable television network she plans to use,as follows:  For what range of probability that the new cable network will be successful will she select the mixed media strategy?

Quizplus · Accepted Answer

To decide the best strategy, we need to compare the cost per thousand hits for each medium for different probabilities of success of the new cable network. 
For print media: 
- Cost per thousand hits = $2.50 
For television: 
- Probability of success 0.3: Cost per thousand hits = $3.50 
- Probability of success 0.5: Cost per thousand hits = $2.50 
- Probability of success 0.7: Cost per thousand hits = $2.00 
- Probability of success 0.9: Cost per thousand hits = $1.50

Now, we can find the cost per thousand hits for the mixed media strategy in different ranges of probabilities: 
- Range 1: 0 - 0.4 probability of success for the new cable network 
   - Cost per thousand hits for mixed media = [(0.6 x $2.50) + (0.4 x $3.50)] = $2.80 
- Range 2: 0 - 0.55 probability of success 
   - Cost per thousand hits for mixed media = [(0.45 x $2.50) + (0.55 x $2.50)] = $2.50 
- Range 3: 0.4 - 0.7 probability of success 
   - Cost per thousand hits for mixed media = [(0.3 x $2.50) + (0.4 x $2.00) + (0.3 x $2.50)] = $2.10 
- Range 4: 0.55 - 1 probability of success 
   - Cost per thousand hits for mixed media = [(0.25 x $2.50) + (0.25 x $1.50) + (0.5 x $2.50)] = $2.00

From the above calculations, we can see that the mixed media strategy is the best choice for the range of probability 0.4 - 0.7, where it has the lowest cost per thousand hits of $2.10. Therefore, the answer is C.

The Advertising Manager for Roadside Restaurants,Inc