Several years ago the National Association of Broadcasters imposed restrictions

Question

Several years ago the National Association of Broadcasters imposed restrictions on the
amount of non-program material (commercials) that could be aired during children's television shows, effectively reducing the quantity of advertising allowed during children's viewing hours by 33 percent. Within four months, the price of a minute of advertising on network television increased by roughly 14 percent. What impact do you think this had on the revenues of the networks? Several years ago the National Association of Broadcasters imposed restrictions on the
amount of non-program material (commercials) that could be aired during children's television shows, effectively reducing the quantity of advertising allowed during children's viewing hours by 33 percent. Within four months, the price of a minute of advertising on network television increased by roughly 14 percent. What impact do you think this had on the revenues of the networks?

Explanation / Answer

The reduction in allowable advertisements of 33 percent reduces supply therefore driving up price. The revenues for the networks would be highly concentrated but overall less money would be made. I made an example below to justify my conclusions. I picked 60 mins per day of advertising arbitrarily.

60X.33= 19.8

60-19.8=40.2

40.2X1.14= 45.82

45.82<60 therefore the more dense ads are actually still not as profitable

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