Scenario 16-7
Consider the problem facing two firms, YumYum and Bertollini, in the frozen food market. Each firm has just come up with an idea for a new "frozen meal for two" which it would sell for $9. Assume that the marginal cost for each new product 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 1.5 million consumers to try its new product. YumYum has done market research which suggests that its product does not have any "staying" power in the market. Even though it could get 1.5 million consumers to buy the product once, it is unlikely that they will continue to buy the product in the future. Bertollini'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, Bertollini estimates that its initial 1.5 million customers will buy one unit of the product each month in the coming year, for a total of 18 million units.
-Refer to Scenario 16-7. Which of the following is most likely?
A)Both YumYum and Bertollini will advertise.
B)Neither YumYum nor Bertollini will advertise.
C)YumYum will advertise, but Bertollini will not advertise.
D)Bertollini will advertise, but YumYum will not advertise.

Question

Quizplus · Accepted Answer

Since YumYum's market research suggests that its product does not have any staying power in the market, it would not make sense for them to advertise since they would not be able to retain customers in the long run. On the other hand, Bertollini's market research suggests that its product is likely to retain customers over the ensuing year, so it would be a good idea for them to advertise in order to attract as many customers as possible. Therefore, Bertollini will advertise, but YumYum will not advertise.

Scenario 16-7 Consider the Problem Facing Two Firms, YumYum and Bertollini, in Bertollini