Why do monopolistic ally competitive firms spend funds for product differentiation and advertising when this practice only adds to the firm’s costs?
What will be an ideal response?
The long-run equilibrium condition for the representative firm in monopolistic competition indicates that the firm will only break even or earn normal profits. The firm, however, may try to improve on this long-run condition by spending funds on new product differentiation or advertising. These expenditures may be justified and delay the long-run equilibrium if demand increases by an amount sufficient to cover these costs. The firm is unlikely to improve its economic profits through price cutting, so some form of non price competition is needed. Spending funds for product differentiation, product development, or advertising makes sense if demand increases and the new revenues cover these costs.
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A quota is the same as a voluntary export restraint
Indicate whether the statement is true or false
A decrease in supply, with no change in demand, will lead to ________ in equilibrium quantity and ________ in equilibrium price.
A) an increase; an increase B) an increase; a decrease C) a decrease; an increase D) a decrease; a decrease
Explain why the price elasticity varies even when a firm faces a linear demand curve.
What will be an ideal response?
A portrait photographer produces output in packages of 100 photos each. If the output sold increases from 600 to 700 photos, total revenue increases from $1,200 to $1,400 . The marginal revenue per photo is:
a. $2. b. $200. c. $100. d. $1. e. $20.