An athletic footwear company is attempting to estimate the sales that will result from a television advertisement campaign of its new athletic shoe. The contribution to earnings from each pair of shoes sold is $40. Suppose that the probability that a television viewer will watch the advertisement (as opposed to turn his/her attention elsewhere) is 0.40. Furthermore, suppose that 1% of viewers who watch the advertisement on a local television channel will buy a pair of shoes. The company can buy television advertising time in one of the time slots according to Table below: Television advertising costs and viewers
Time Slot Cost of Advertisement ($/minute) Estimated number of viewers
Morning 120,000 1,000,000
Afternoon 200,000 1,300,000
Prime Time 400,000 3,200,000
Late evening 150,000 800,000
(a) Suppose that the company decides to buy one minute of advertising time. Which time slot would yield the highest expected contribution to earnings net of costs? What is the total expected contribution to earnings resulting from the advertisement?
(b) Suppose the company decides to buy two one-minute advertisements in different time slots. Which two different time slots should the company purchase to maximize the expected contribution to earnings? What is the total expected contribution to earnings resulting from these two advertisements?