Suppose you are in charge of setting the price for commercial advertisements shown during Enemies, a top network television show. There is a 60-minute slot for the show. However, the running time for the show itself is only 30 minutes. The rest of the time can be sold to other companies to advertise their products or donated for public service announcements. Demand for advertising is given by: Qd = 30 – 0.0002P 26 V where Qd = quantity demanded for advertising on the show (minutes), P = the price per minute that you charge for advertising, and V is the number of viewers expected to watch the advertisement (in millions). All your costs are fixed and your goal is to maximize the total revenue received from selling advertising. Suppose that the expected number of viewers is one million people. What price should you charge? How many minutes of advertising will you sell? What is total revenue? We can see from the demand curve that as the price increases the quantity demanded will come down. And as the number of viewers increase so will the quantity demanded will also increase.
As we want the revenue maximization, we bring in the concept of marginal revenue. As for maximization MR=0
From the demand curve we have: Qd = 30 – 0.0002P 26 V
Taking out the value of P from here and substituting the value of V, the number of viewers which is 1 million.
P = 280,000 – 5000Qd
We know that the MR has the same intercept as the Price equation but the slope is doubled therefore:
MR = 280,000 – 10000Qd
For revenue Maximization: MR = 0
Qd = 28 minutes The Price at which the 28 minutes will be charged is: 140,000 million/minute. Since TR = Qd * P
TR = 3920, 000 Suppose price is held constant at the value from part (a). What will happen to the quantity demanded if due to PVRs the number of expected viewers falls to 0.5 million? Calculate the “viewer elasticity” based on the two points. Explain in words what this value means. Keeping price P constant:
Qd = 30 – (0.0002*140,000) 26 (0.5) = 15
The optimal quantity has changed to 15 from 28 when the volume changed to 0.5 million from 1 million. Hence,
Q1 = 28, V1 = 1 Q2 = 15, V2 = 0.5 The elasticity is percentage change in the demand / percentage change in the viewers. Therefore elasticity becomes: 0.91.
Therefore we can say that 1% increase or decrease in the viewers will cause a subsequent 0.91% increase or decrease in the Quantity demanded.
As more viewers begin using PVRs, what happens to the revenues of the major networks (CBS, NBC, ABC, and FOX)? As and when the popularity of the PVR will grow, the revenue of the major networks will come down since TR = Qd * P.
In this case the price remains constant but the quantity demanded will come down, hence bringing the TR also down. As with usage of PVR, people will skip the advertisements and the demand for the advertisement going down. The networks are dependent on the advertisers for their revenue coverage as a show of 60 minutes includes 30 minutes of commercials. Now if there will be no viewership of advertisements, there will be less advertisements on air and hence affecting the revenue of the major channels also.
Discuss the long-run effects if a significant proportion of the viewer’s begin adopting these “advertising snipping” systems. The long run effect of more number of people start adopting the advertisement skipping systems will be very deep and harmful for the advertising agencies and the major channels. As with increasing number of people buying the pvr the decreasing will be the viewership of the commercials which can lead to the major channels into losses as they will not be able to cover their costs efficiently. Some alternative should be adopted by the major channels that could cover the costs and lead them to some profits. The major source of the major channels to gain profit is through advertisement. Now since the advertisement option is very fading they can directly charge from the end user, the people who are watching the channels. As this might lead to some profits to the major channels.
What advice would you give the major commercial networks and producers of programming for these networks as more consumers adopt PVRs? A change is required with the change in the Global market. The strategies have to be renewed every time again and the change has to be speedy in nature because there is a fear of extinction otherwise. My suggestions for the commercial networks and the major channels are that they should immediately change their strategy. Either they should start charging the viewer’s straight away or they should pursue the viewer’s somehow to watch the commercials. This can be done by probably making the advertisement interesting and funny enough so that the viewers don’t feel like skipping it. Or the advertisement should have some kind of intangible connect with the viewers. The medium of the advertisements can also be made more divergent like hoardings display or in the theatres during the start of the movies or involving an appreciated celebrity. Hence they will have to open up to new ideas and thoughts in order to save themselves from making losses.
The History Of Keynesian Theory Economics Essay
Keynesian theory proposed by John Maynard Keynes claimed that active government intervention is the key factor for economic growth and stability. Specifically, this economics theory recommends that increasing government spending or decreasing tax rates will be the most appropriate method to stimulate aggregate demand. Subsequently, an increase in aggregate demand would bring a greater increase in the national output.
From our observation, Keynesian theory is applicable in Malaysia. One of the best situations to prove the claiming of Keynesian economics would be during the Asian Financial Crisis on 1997 to 1999. In 1998, Malaysia’s Gross Domestic Product (GDP) suffered a contraction of growth rate 7.4%. For example, construction sector shrunk 23.5%, manufacturing sector contracted 9%, and the agriculture sector shrink 5.9% (The 1997-1998 Asian Financial Crisis in Malaysia, 2010). Besides, Malaysia is an export-driven country with large shares of exports and imports in GDP. During that time, the contraction in export is the most serious reason which burdened the whole economy.
To recover the economy, Malaysia government had implemented expansionary fiscal policy by increasing government spending in order to stimulate aggregate demand. From the aspect of government spending, government spending is one of the 4 components of aggregate demand in the economy. Because of the positive relationship between government spending and aggregate demand, increasing in government spending helps in stimulate aggregate demand which recover the economy from recession.
Government spends money in several ways, such as military, services (e.g.: education, healthcare), transfer payment (e.g.: subsidies, social welfare) and so on. In July of 1998, the government launched a fiscal stimulus package of total RM7 billion to support economic activities and sustain growth to overcome the negative effects of the recession. The fiscal stimulus package was allocated in the following development expenditure: RM2.2 billion for Dana Pengurusan Harta, RM1.5 billion for infrastructure and public amenities, RM1 billion for education, RM0.65 billion for cyberview, RM0.35 billion for agriculture, RM0.3 billion for health, and poverty eradication respectively, and RM0.2 billion for industrial development, for housing, for rural development respectively (Economic Stimulus Package: How Effective Are They??, n.d.). Associated with positive effect of monetary policy implemented by Bank Negara Malaysia which will be discussed in next section, consequently, the economy recovered its growth from recession, whereby its GDP growth rate increases to 6.1% in 1999 from the initial -7.4% in 1998.
Later on during 1999 to 2003, the government was still implementing the fiscal policy in expansionary stance, due to the continuous economic uncertainties. Consequently, Malaysia was able to maintain a positive growth rate. Nevertheless, during 2007, the global financial crisis occurred which contributed another difficult year to Malaysia. The great negative impact of the global financial crisis would be a collapse of exports to United States. As a result, Malaysia had a contraction in aggregate demand, which led to reduction in economic growth of -1.5% growth rate.
Again, in order to offset the decline in aggregate demand because of the significant decline in exports of Malaysia, the government had launched 1st fiscal stimulus packages (EPS1) of RM7 billion in November 2008, and second packages (EPS2) of RM60 billion in March 2009. As general, the main 3 aspects of EPS1 were:
Ensuring citizens’ well-being.
– E.g.: building additional low cost houses, upgrading and repairing of public transportation (Commuter, Bus, and LRT), and adding business premises for small/medium entrepreneurs.
Developing quality human capital
– E.g.: Skill Training Funds, youth skill training programs, preschool education and so on.
Strengthening national resilience
– E.g.: upgrading and maintenance of public amenities (schools, hospitals, roads, police stations), and implementing High Speed Broadband Project.
While the EPS2 of RM60 billion was implemented with the purpose of:
Reducing unemployment and increasing employment opportunities
– E.g.: creating 163,000 training and providing employment opportunities, etc.
Easing the burden of citizens
– E.g.: Allocating RM1.154 billion to providing subsidies on daily food staples such as sugar, wheat flour and bread, and toll subsidies, increasing house ownership, and etc.
Assisting the private sector in dealing with the crisis
– E.g.: Reducing the cost of business, providing Working Capital Guarantee Scheme of RM5 billion as working capital for companies with shareholder equity less than RM20 million.
Consequently, the economy recovered its growth from recession, whereby its GDP growth rate increases to 7.2% in 2009 from the initial -1.2% in 2008.
In a nutshell, Malaysia government believes that by implementing expansionary fiscal policy, it can effectively stimulate aggregate demand which will recover the economy from recession. Therefore, Keynesian theory is proven as it is applicable in Malaysia.