Question

dip and zip’s pricing options and resulting

Help Window Bookmarks People History w + apter 12) X tructure.com/courses/79516/assignments/861843 ECUIT TZ0 sectIonTCTarzUTS Homework: Chapter 12 Homework 10 of 10 (9 complete) Score: 0 of 1 pt Text Exercise 5.3 Consider a duopoly with two firms managed by Huck and Stella. A standard advertising campaign has a cost of $5 million per firm. If both firms run a standard advertising campaign, the net revenue from sales increases by $3 million for each firm. If only one firm runs a campaign, the advertiser's net revenue from sales increases by $9 million, and the other firm's net revenue from sales decreases by 6 million. Fill in the blanks in the following table. (Enter your responses as integers.) Neither Both Only Huck Advertises Advertises Advertise Huck Stella Huck Stella Huck Stella Net revenue $11 from sales $11 Advertising Cost 0 0 $5 $5 $5 Profit $11 $11 $ Enter your answer in the edit fields and then click Check Answer part remaining Clear All

Answer 1

Without advertising, both firms earn net sales revenue of $11 million each.

If both firms advertise then each firm's net sales revenue increases by $3 million.

So, each firm's net sales revenue after both firm's undertake advertising is ($11 million + $3 million) $14 million.

The advertising cost is $5 million.

So, profit of each firm would be ($14 million - $5 million) $9 million.

If only Huck advertises then Huck's net sales revenue will increase by $9 million and would become ($11 million + $9 million) $20 million.

The advertising cost is $5 million.

So, profit of Huck is ($20 million - $5 million) $15 million.

When only Huck advertises and Stella does not then Stella's profit decreases by $6 million and would become ($11 million - $6 million) $5 million.

With no advertising cost, Stella's profit would be ($5 million - $0) $5 million.

Following is the complete table -

Neither Both Only Huck Advertises Advertise Advertises Huck Stella Huck Stella Huck Stella 911 $11 $14 $14 $ 20 $5 Net revenue from sales Advertising Cost Profit 0 $11 0 $11 $5 $19 $5 $9 $ 5 $15 0 $5