Reference no: EM133126065

Question 1: Consider the following problem. DealCo has come up with a gadget and is contemplating whether to advertise during the next Superbowl. Consumers have heard of the gadget but are uncertain of its quality. Given its current price, they are unwilling to try it because of the uncertainty, but would be willing to purchase if they believed that it is high quality with high-enough probability. The marketing department of DealCo has estimated that, if they can persuade consumers to try the product, they will earn $50M in additional profits if the gadget is a high-quality one, while they will earn $20M in additional profits if the gadget is a low-quality one, with the difference arising from converting consumers to repeat customers when they have a good experience. How expensive should the Superbowl ad be so that the potential customers could take seeing the ad as a credible signal of high quality and so try the product?