microeconomics book solution 15

C since pepsi can raise its revenue by 100000 from

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c. Since Pepsi can raise its revenue by \$100,000 (from \$700,000 without advertising to \$800,000 with advertising), it should be willing to spend at most \$100,000 on an advertising campaign. 9. Philip Morris and R.J. Reynolds spend huge sums of money each year to advertise their tobacco products in an attempt to steal customers from each other. Suppose each year Philip Morris and R.J. Reynolds have to decide whether or not they want to spend money on advertising. If neither firm advertises, each will earn a profit of \$2 million. If they both advertise, each will earn a profit of \$1.5 million. If one firm advertises and the other does not, the firm that advertises will earn a profit of \$2.8 million and the other firm will earn \$1 million. Price of Pepsi Quantity of Pepsi demanded (per can) (millions of cans) \$0.10 5 0.20 4 0.30 3 0.40 2 0.50 1 C H A P T E R 1 5 O L I G O P O LY S-217 S209-S220_Krugman2e_PS_Ch15.qxp 9/16/08 9:23 PM Page S-217

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