Problem

Sleek Sneakers Co. is one of many firms in the ma…

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Problem 9 Hard Difficulty

For each of the following pairs of firms, explain which firm would be more likely to engage in advertising.
a. a family-owned farm or a family-owned restaurant
b. a manufacturer of forklifts or a manufacturer of cars
c. a company that invented a very comfortable razor
or a company that invented a less comfortable razor

Answer

(a) Advertisement plays a greater role in a family-owned restaurant than a family-owned farm. A
familly-owned restaurant sells its product in a monopolistic competitive market and faces a non-price competition from other restaurants and advertisement will help the restaurant to attract more customers. While a family-owned farm sells it product in a perfectly competitive market where there are similar and identical products and thus limits the role of advertisement.
(b) since cars are consumer goods and that it faces monopolistic competitive market, the
manufacturers of cars are more likely to engage in advertising. There is an element of product
differentiation in the market for cars and advertisement helps in molding consumer's decision regarding the purchase of cars. However, forklifts are industrial goods and there is not much of
product differentiation in its market. Therefore, advertisement plays a minor or no role in such
products.
(c)Inventions and innovations in a product increase its brand value and advertising its newness in
the market attracts more customers and increases its is is the case for a company that invented a very comfortable razor. It will restore to advertising and thus increase its sale in the market and enable it to incur more profits, which help to cover the cost of advertisement. However, a company that invented a less comfortable razor cannot engage in advertising, as it may not be able to cover the cost of advertising.

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Video Transcript

this 1 may seem a little confusing at first, but it helps if you try to remember that in some cases consumers, whether it's the end user or an intermediary, sometimes they care much more about price. And then there are other times when they care more about quality and the differences between different products, even if they're in the same classifications of product. Okay, so let's let's try to go through each of these, and maybe it'll become more clear. So for Letter A, a family owned farm or a family owned restaurant, which is gonna be more likely to engage in advertising well, the family owned farm is likely selling to people who are much more concerned about price, in part because they're typically selling to retailers who are then going to sell to the end user. Okay, there's not a whole lot of product differentiation, and the quality is really a pastor fail issue. When a supermarket, let's say, is buying from a farm. Either the food is able to be resold or it's not. There aren't varying degrees there, so someone like that is likely not to engage in advertising. But the family owned restaurant they're competing in a market that is not so much concerned about price. It's more so concerned about quality and product differentiation because they're in a monopolistic lee competitive market. Okay, no one else has the exact same food that restaurant does prepared in the exact same way. But you have a lot of other alternatives to restaurants. Okay, so for the next one letter B, a manufacturer of forklifts or a manufacturer of cars again, same thing. Most consumers are not going out and buying for cliffs. The people who buy forklifts, factories, warehouses there again, concerned with the price aspect. People who are buying cars are more concerned with quality and product differentiation. That's not to say prices and a factor, But a lot of times when you see a car advertisement, what are they highlighting? They're highlighting the quality of the reliability of the car. They're highlighting features that there vehicle has that other brands don't because it's a monopolistic lee competitive market. Okay, so the car manufacturer is more likely to engage in advertising. How about the company that invented a very comfortable razor or a company that invented a less comfortable razor? Well, you can go to most pharmacies or supermarkets for big box stores, and you can find no name. Razors that you've never heard of that are incredibly cheap, and they're not advertised. But the razors that have 456 blades that have waited handle and all kinds of of lubricating and al oh strips and different things those were the ones that are typically advertised again. It's a monopolistic lee competitive market, so the advertising is trying to highlight the product differentiation and the quality.

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