Scenario 16-3 Consider the Problem Facing Two Firms, YumYum and Bertollini, in Bertollini

question 154

Multiple Choice

Scenario 16-3
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 16-3. On the basis of a theory that people buy a product because it is advertised, the content of advertisements for Bertollini's product

• A)must show a consumer taste-test to be successful.
• B)must include celebrity endorsements to be successful.
• C)is less important than the fact that they are willing to spend money on advertising.
• D)is only important if the quality of the product is high.

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Definitions:

Accounts Receivable Balance

The Accounts Receivable Balance is the total amount of money owed to a company by its customers for goods or services delivered on credit.

Month of Sale

The specific month in which a transaction or sale of goods or services took place.

Accounts Receivable Period

The average number of days it takes for a business to collect payments from its credit sales, indicating the efficiency of its credit and collection policies.

Cash Balance

A measure of the amount of cash that a company, or an individual, has on hand at any given time.