When preparing an income statement vertical analysis, each revenue and expense is expressed as a percent of net income. A. True
B. False

To solve this problem, let us try to break down each scenario one by one. We must calculate the total earnings that the two companies receive for each scenario.

Scenario 1: Neither company advertise

Earning of PM Inc = $ 50 M

Earning of Brown Inc = $ 50 M

Total Earning = $ 100 M

Scenario 2: Both companies advertise

Earning of PM Inc = $ 40 M

Earning of Brown Inc = $ 40 M

Total Earning = $ 80 M

Scenario 3: One company advertise, let us say PM Inc is the company who advertise and Brown Inc does not

Earning of PM Inc = $ 60 M

Earning of Brown Inc = $ 30 M

Total Earning = $ 90 M

We can see that Scenario 1 has the largest total earnings of all scenarios. Therefore the best strategy is:

A. neither company will advertise