Why does perfect competition shun advertising? Does advertising benefit a monopoly?
What will be an ideal response?
In perfect competition, advertising expenditure by firm X will bring most of its benefits to the other firms in the industry, because the ads, if they work, will induce customers to buy more of the identical product from among any of its many sellers. But if a monopoly takes over from a perfectly competitive industry, it may very well pay to advertise. If management believes that the creative touch of the advertising agency can make consumers rush to the market to purchase the product whose virtues have been extolled on television, then the firm will allocate a substantial sum of money to accomplish this feat. This type of expenditure could shift the demand curve outward.
You might also like to view...
To have an effective price support program, the government must
i. isolate the domestic market from the world market. ii. pay the farmers a subsidy. iii. introduce a price floor. A) i only B) ii only C) iii only D) ii and iii E) i, ii, and iii
Which of the following is true?
A) Local governments cannot collect taxes in the U.S. B) Only state governments can collect taxes in the U.S. C) Only the federal government can collect taxes in the U.S. D) The central as well as the local governments collect taxes in the U.S.
Based on opportunity cost, where would one expect to have the most difficulty finding a teenager to baby-sit?
A) A high-income area with lots of teenagers B) A low-income area with lots of teenagers C) A middle-income area with lots of teenagers D) Any income area because teenagers no longer like babysitting
Give a complete and concise definition of each of the following terms
a. deliberately erected entry barriers b. inefficiency of monopoly c. price discrimination d. profit-maximizing equilibrium for a monopolist