Suppose the dairy industry is made of up only by the three firms above; Cow Haven, Free Cows, and Happy Cows.
-Refer to the table above. If the cost per unit of advertising is constant at $675, what is the level of advertising per week that maximizes the industry joint profit?

Question

Quizplus · Accepted Answer

To find the level of advertising that maximizes the industry joint profit, we need to calculate the total profit for each level of advertising and find the level that gives the highest profit.

For Cow Haven: 
- If all firms advertise 0, Cow Haven's profit is $150. 
- If all firms advertise 1, Cow Haven's profit is $225. 
- If all firms advertise 2, Cow Haven's profit is $240. 
- If all firms advertise 3, Cow Haven's profit is $225. 
- If all firms advertise 4, Cow Haven's profit is $200. 
- If all firms advertise 5, Cow Haven's profit is $150.

For Free Cows: 
- If all firms advertise 0, Free Cows' profit is $600. 
- If all firms advertise 1, Free Cows' profit is $600. 
- If all firms advertise 2, Free Cows' profit is $675. 
- If all firms advertise 3, Free Cows' profit is $675. 
- If all firms advertise 4, Free Cows' profit is $600. 
- If all firms advertise 5, Free Cows' profit is $525.

For Happy Cows: 
- If all firms advertise 0, Happy Cows' profit is $225. 
- If all firms advertise 1, Happy Cows' profit is $240. 
- If all firms advertise 2, Happy Cows' profit is $240. 
- If all firms advertise 3, Happy Cows' profit is $225. 
- If all firms advertise 4, Happy Cows' profit is $200. 
- If all firms advertise 5, Happy Cows' profit is $150.

Adding up the profits for each firm at each level of advertising, we get the following table:

Advertising level | Joint profit 
0 | $975 
1 | $1065 
2 | $1155 
3 | $1125 
4 | $1000 
5 | $825

The level of advertising that maximizes the industry joint profit is when all firms advertise 2, which gives a joint profit of $1155. Therefore, the answer is C.

Suppose the Dairy Industry Is Made of Up Only by the Three