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Consider Two Cigarette Companies, PM Inc

Question 154

Multiple Choice

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 the information provided. In 1971, the federal government passed a law that banned cigarette advertising on television. If cigarette companies are profit maximisers, it is likely that:


A) Brown Inc. sued the federal government on the grounds that the ban constitutes a civil rights violation
B) both companies sued the federal government on the grounds that the ban constitutes a civil rights violation
C) both companies retaliated with black market operations
D) neither company opposed the ruling

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