Why are selling costs high in monopolistic competition?
What will be an ideal response?
In monopolistic competition, there are a large number of small firms producing differentiated products. Each firm's output is a substitute for other firms' output; therefore demand for any firm's product is very elastic. If firms can further differentiate their product in the eyes of the consumer, they might be able to both increase demand and decrease demand elasticity, at least temporarily. In this case, the firm could then charge a higher price and, temporarily at least, make an economic profit. This differentiation occurs through innovation, product development and marketing, which contribute to selling costs.
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What is one problem with using a Clarke tax to finance government provision of a public good?
a. People tend to overstate their preferences for the public good when a Clarke tax is imposed. b. The government may decide against providing the public good, even when it would be efficient to do so. c. The Clarke tax is not a fair tax, because everyone pays the same amount regardless of income. d. The revenues collected from the Clarke tax may not cover the cost of the public good.
Deregulation has dramatically decreased airline safety.
Answer the following statement true (T) or false (F)
Considering capital, marginal factor cost is defined as the
a. extra output produced by employing one more unit of capital (or loanable funds) b. extra total cost attributed to employing one more unit of capital (or loanable funds) c. contribution of capital (or loanable funds) to the final product d. change in capital (or loanable funds) required to produce one more unit of output e. change in total revenue contributed by an extra unit of capital (or loanable funds)
Which of the following decreases in labor demand is due to a change in product demand?
A. An increase in the price of steel increases the cost of producing cars and trucks, thus decreasing the demand for automobile workers. B. A decline in productivity in retailing decreases the demand for retail sales workers. C. The widespread availability of news on the web reduces the demand for newspaper workers. D. An increase in the price of paper increases the cost of making books, thus decreasing the demand for bookbinders.