Suppose you are the Marketing Manager for Dr. Pepper. Let's assume that each year you sell 6 billion cans of Dr. Pepper at the price of $0.499. The long-run average gross cost of a serving is constant and is equal to $0.40 per can. Your supervisor calls you and assigns a project if it makes economic sense of running additional advertising during the World Series game between the Texas Rangers and L.A. Dodgers.
a. You determine that running the 30-second advertisement will raise the price consumers are willing to pay for the initial 6 billion servings by $0.001 (1/10 of a cent) per can. You also determine that the advertisement will allow you to sell 1 million more servings at a new price of $0.50 per serving. The price of a 30-second Super Bowl commercial is $5 million. Should you buy the advertisement?