posted by Dee .
Tots-R-Us operates the only daycare center in an exclusive neighborhood just outside of Washington, DC. Tot-R-Us is making a substantial economic profit, but the owners know that new daycare centers will soon learn of this highly proftable market and attempt to enter the marker. The owner decide to begin spending immmediately a rather large sum mon advertising designed to decrease elasticity. Should they wait unitl new firms actually enter? Explain how advertising can be employed to allow Tots-R-Us to keep price above average cost with encouraging entry.
Take a shot, what do you think?
Hint: if advertising is used to discurage entry, then definately advertise before new firms actually enter. Hint2: think about the capital investment needed for a new day-care center?