In a small town, there are two people who paint homes. Jim does a bad job such that when customers find out (too late) how bad his work is, they do not use him again. Mary does a good job such that customers come back to Mary. Both charge the same price for painting a house and make a $400 profit from each job. The value to Mary of repeat business is $1,000 as it allows her to work year-round.

New customers, without a market signal, cannot tell who is better. If one person advertises and the other does not, new customers go to the person who advertises (if both advertise, half go to each). What must advertising cost (per new customer) at a minimum (!) for it to be worthwhile for Mary to purchase?