Consider a product market with a supply function Qs i = b0 + b1 Pi + u s i , a demand function Qd i = g0 + u d i , and a market
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Answer:
It will need to increase his marketing effort by $571,428.57
Explanation:
overall sales 70,000,000
overall marketing 16,000,000
current share 20%
14,000,000 sales revenue
3,200,000 marketing effort
potencial share of 22%
if we add a dollar of marketing effort, our competitor will also add a dollar.
So we have the following situation:
1 dollar of the company increase the marketing effort by 2 dollars, 1 of our own, and one for the competitors.
<u>We solve for X:</u>
3,200,000 + X = (16,000,000 + 2X) x 0.22
3,200,000 + X = 3,520,000 + 0.44X
X - 0.44X =3,520,000 - 3,2000,000
.56X = 320,000
X = 320,000/.56 = 571,428,5714
It will need to increase his marketing effort by $571,428.57