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

question 447

Multiple Choice

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.

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Definitions:

Counteroffer

A response to an offer in negotiations that presents different terms than originally proposed, effectively rejecting the initial offer.

Original Offer

The initial proposal or terms presented during negotiations or when making a deal, before any modifications are made.

Communicated By Words

Information or messages that are transmitted or conveyed through spoken or written language.

Conduct

The manner in which a person behaves, especially in a particular setting or context.