Wiz-Bang Games Is a New Video Game Maker for the Latest

question 39

Essay

Wiz-Bang Games is a new video game maker for the latest game console. As a new game maker, they have not established a reputation of providing quality games. The marginal cost to Wiz-Bang for manufacturing games is: MC(Q) = 0.05Q. The market price for low-quality games is $20. The market price for high-quality games is $65. If Wiz-Bang sells their product in the low quality market, calculate their producer surplus. If Wiz-Bang sells their product in the high quality market, calculate their producer surplus. If Wiz-Bang spends $12,500 on marketing and packaging, they will be perceived as a high quality producer of video games. Should Wiz-Bang spend the $12,500 to provide a signal to video game consumers of producing high quality games?

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Definitions:

Dividend Payout Ratio

A financial metric that measures the percentage of a company's earnings distributed to its shareholders in the form of dividends.

Profit Margin

A financial metric that measures the amount of net income earned with each dollar of sales by calculating the percentage of revenue that exceeds the costs of goods sold.

Debt-Equity Ratio

A ratio indicating a company's use of financial leverage, found by dividing liabilities by stockholders' equity.

Dividend Payout Ratio

The portion of earnings paid to shareholders in dividends, calculated as total dividends divided by net income.