Advertising and Corporate Clusters Consider corporations that use advertising firms to develop marketing campaigns. Each corporation buys one campaign per year, and the cost per campaign is $120?n, where n ? the number of corporations in the cluster (and campaigns per year). The cost of labor per firm is $30 ? n. A corporation’s profit equals its total revenue of $200 minus the sum of its marketing and labor costs. There are two location options: an isolated site (n ? 1) or a cluster with up to five corporations. Use a graph like Figure 3–2 to show the profit gap (profit in cluster − profit in isolation) for one through five corporations. If initially all corporations are isolated and then one joins another to form a two-corporation cluster, other firms [will, won’t] have an incentive to join
7. Advertising and Corporate Clusters
Consider corporations that use advertising firms to develop marketing campaigns. Each corporation buys one campaign per year, and the cost per campaign is $120?n, where n ? the number of corporations in the cluster (and campaigns per year). The cost of labor per firm is $30 ? n. A corporation’s profit equals its total revenue of $200 minus the sum of its marketing and labor costs. There are two location options: an isolated site (n ? 1) or a cluster with up to five corporations.
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Use a graph like Figure 3–2 to show the profit gap (profit in cluster − profit
in isolation) for one through five corporations.
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If initially all corporations are isolated and then one joins another to form a
two-corporation cluster, other firms [will, won’t] have an incentive to join
the cluster because....
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In the long-run equilibrium, there will be a cluster of corporations,
each of which will earn a profit of , differing from the profit of an
isolated site by
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