Scenario 16-3
Consider the problem facing two firms,Firm A and Firm B,in the fast-food restaurant market.Each firm has just come up with an idea for a new fast-food menu item which it would sell for $4.Assume that the marginal cost for each new menu item is a constant $2,and the only fixed cost is for advertising.Each company knows that if it spends $12 million on advertising it will get 2 million consumers to try its new product.Firm A has done market research which suggests that its product does not have any "staying" power in the market.Even though it could get 2 million consumers to buy the product once,it is unlikely that they will continue to buy the product in the future.Firm B's market research suggests that its product is very good,and consumers who try the product will continue to be consumers over the ensuing year.On the basis of its market research,Firm B estimates that its initial 2 million customers will buy one unit of the product each month in the coming year,for a total of 24 million units.
-Refer to Scenario 16-3.Which of the following is most likely?

Question

Quizplus · Accepted Answer

Firm B has market research suggesting its product has staying power, so it makes sense for it to invest in advertising to reach the initial 2 million customers who will become repeat buyers. Firm A, on the other hand, has market research suggesting its product does not have staying power, so it would not make sense for it to invest in advertising. Therefore, Firm B will advertise and Firm A will not.

Scenario 16-3 Consider the Problem Facing Two Firms,Firm a and Firm B,in