CASE STUDY

Economic Analysis



Economic Analysis

Case Study 1Question 1

PVRs are the threat for advertisers, broadcasting channels, may lose revenue they were getting from different companies by showing their ads. Off course, no one wants to watch a recorded program with ads, they will skip the advertisement. It also involved disruption of the business of television advertising: it determined that PVRs users fail to see around 70% of the advertising broadcast. 87% of users say that the main advantage of the device is to skip the publicity (Morris, 2009). The losers are obviously companies that pay millions of euros for space in prime time, and find that an increasing percentage of the theoretical spectators whose audience they sold the chain are, in fact, completely immune to your messages advertising because they simply do not get to see the ads. So, it seems that it will negatively hit the demand for advertisements. It can also be the opportunity, Although they are a threat to traditional commercial breaks the PDR nonetheless offer new opportunities for advertisers. Consumers with a PDR can watch TV programs directly with ad default, included in the program schedule. For example, it is not useful to broadcast advertisement for cat food in households with a dog but no cat. In these homes, commercials for cat food would be automatically replaced by announcements of dog food. So it can have positive and negative impact, but apparently it is a threat for television advertisement. Advertising companies have the opportunity to come up with new plans, and attract the customers through ads.Question No. 2 Revenue=P*Q=P(30-0.0002P+26)= -0.0002P^2+56PSo when P=(-56)/(-0.0002*2) =140000, the revenue maximized at (-56^2)/(-0.0002*4) =3920000 (by property of quadratic function y=ax^2+bx+c: if a<0, when x=-b/(2a), then y has a maximum value (4ac-b^2)/(4ac))(b). if P=140000, then

Qd=30-0.0002*140000+26V=2+26Vif V=0.5, then Qd=15at V=0.5 point, elasticity=0.5/15*26=0.87It means that if the number of viewer increase (decrease) by 1%, then quantity demanded will increase decrease by 0.87%.Question No. 3

As the number of PVRs users increases, the revenues of the leading channels will decrease. This is due to Total revenue= Price*Quantity Demand. So if, the price remains same, there will be a decrease in Qd, which will consequently decrease the total revenue. It is a threat for advertisers, and they have to take measures in order to remain competitive.

Question No. 4

If time passes, and significant number of people start using PVRs and start using these advertising snipping systems, this decrease the demand for advertisers in the long run. Companies use less commercials as their conventional advertising ...