Gillette is convinced that men continually seek a better, closer shave. Hence, it has just launched the Fusion, the first five-blade razor, in both manual and battery-powered versions. Gillette is planning to spend about $100 million in aggressive advertising to win back market share from Schick, which introduced the four-bladed Quattro two years ago. Schick has just come out with a power-version of the Quattro too. Since 2003, Gillette's market share has fallen from 86% to 81%, and Schick has picked up that market share, increasing from 10% to 16%. Gillette has been forced to react to market "needs" more quickly, significantly reducing its product innovation cycle. Gillette went 27 years with only twin blade razors; in 1998 it introduced the Mach3 razor with three blades. In 2003, it introduced the M3 Power, which vibrated over the skin with the help of a battery. Shortly thereafter, Schick one-upped Gillette by introducing the Quattro, the four-blade razor. Now, seven years later, Gillette leap-frogged over the four-blade razor to push the envelope with the Fusion. Focus groups have indicated that men prefer the five-blade razors to the Mach3 razors by 2-to-1, Gillette has no doubts that people will be willing to pay $10-$15 for a new razor, and $12-$13 for a four-pack of replacement blades. [Sarah Ellison and Charles Forelle. "Gillette's Smooth Bet: Men Will Pay More for Five-Blade Razor." The Wall Street Journal. 15 September 2005.] a. (5 points) Consider shaving a production process, with the output being a clean, close shave. How does diminishing marginal productivity play a role in how many blades a razor can have? b. (3 points) What should happen to the elasticity of demand for the Quattro and for the Mach3 razor now that the Fusion has come on the market? Why? c. (2 points) Does the significant spending on advertising the Fusion amount to a prisoners' dilemma? Why or why not?