Advertising is a multi-billion-dollar industry. Using concepts, which you have learned in this course, trace the reasons why you would consider advertising the goods/services that you sell.

1. What are the physical and economic characteristics of goods/services sold which will benefit from advertising? Why? Explain.
2. Let's assume that you are working as the Assistant Marketing Manager for Dr. Pepper company. Let's assume that each year the firm sell 6 million cans of Diet Dr. Pepper at a price of $0.50. The long-run average gross cost of a serving is constant and is equal to $0.40 per can. Your Marketing Manager calls and assigns a project if it will make economic sense of running additional advertising during the World Series between the Houston Astros and the Philadelphia Phillies.

You determine that running the 30-second advertisement will raise the price consumers are willing to pay for the initial 6 million servings by $0.05 per can. You also determine that the advertisement will allow the firm to sell an additional million more servings at a new price of $0.55 per serving. The price of a 30-second World Series commercial is $75,000. Should you buy this advertisement? Why or Why not? Please offer a logical answer based on calculations and show all the work.

1. The other option is running a 60-second advertisement. It will be more than three times the previous cost at $250,000. However, your model estimates that the firm can sell an additional three million cans sold nationwide at a higher price of $0.60 per can.
2. Comparing these options, should you recommend the cheaper approach (30 seconds) or the more expensive (60 second) commercial? Why or Why not in each case? Using economic calculations and analysis to explain your answers.