Large sum on advertising designed to decrease elasticity

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Q. Tots-R-Us operates the only day-care center in an exclusive neighborhood just outside of Washington, D.C. Tots-R-Us is making substantial economic profit but the owners know that new day-care centers will soon learn of this highly profitable marketplace also attempt to enter the marketplace. The owners decide to begin spending immediately a rather large sum on advertising designed to decrease elasticity. Should they wait until new firms actually enter? Elucidate how advertising can be employed to allow Tots-R-Us to keep cost above average cost without encouraging entry.

Reference no: EM1321490

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