Scenario 17-3
Consider two cigarette companies, PM Inc.and Brown Inc.If neither company advertises, the two companies split the market.If they both advertise, they again split the market, but profits are lower, since each company must bear the cost of advertising.Yet if one company advertises while the other does not, the one that advertises attracts customers from the other.
-Refer to Scenario 17-3.Parliament passed a law that banned cigarette advertising on television.If cigarette companies are profit maximizers,what is most likely

Question

Quizplus · Accepted Answer

Since both companies were splitting the market prior to the ban, it is likely that they were not relying heavily on advertising to attract customers. Therefore, neither company would have a strong incentive to oppose the ban on advertising. Additionally, suing the government on the grounds of civil rights violations would be unlikely to succeed, as the government has the authority to regulate certain types of commercial speech, such as advertising. Finally, engaging in black-market operations would be both illegal and risky, and would likely result in lower profits than continuing to operate legally in the reduced-advertising environment.

Scenario 17-3 Consider Two Cigarette Companies, PM Inc.and Brown Inc.If Neither Company