Question:
How would you explain the following?
KinderCare operates the only daycare center in an exclusive neighborhood and they are making a large economic profit. The owners believe that new day cares will soon learn of this highly profitable market & try to enter the market so they decide to begin spending immediately a large amount of money on advertising designed to decrease elasticity. Do you believe the owners should wait until these new day cares actually enter? Why or why not? How could the advertising be employed to allow KinderCare to keep price above average cost without encouraging the entry?