Question $5(6\mathrm{.}67$ points$)$

Scenario $1-3$

Consider the problem facing two firms, YumYum and Bertollini, in the frozen food market. Each firm has just come up with an idea for a new "frozen meal for two" which it would sell for $$9.$ Assume that the marginal cost for each new product is a constant $$2,$ and the only fixed cost is for advertising. Each company knows that if it spends $$12$ million on advertising it will get $1\mathrm{.}5$ million consumers to try its new product. YumYum has done market research which suggests that its product does not have any "staying" power in the market. Even though it could get $1\mathrm{.}5$ million consumers to buy the product once, it is unlikely that they will continue to buy the product in the future. Bertollini's market research suggests that its product is very good, and consumers who try the product will continue to be consumers over the ensuing year. On the basis of its market research, Bertollini estimates that its initial $1\mathrm{.}5$ million customers will buy one unit of the product each month in the coming year for a total of $18$ million units.

Refer to Scenario $17-3.$ If YumYum decides to advertise its product, it can expect to

incur a loss of $$15$ million.

incur a l$$ sofs of $$1\mathrm{.}5$ million.

earn a profit of $$1\mathrm{.}5$ million.

earn a profit of $$13\mathrm{.}5$ million.