Explain how advertising influences the demand for a firm's product
What will be an ideal response?
If a firm's advertising program is successful, it will shift the firm's demand curve rightward in the short run. But if this shift in demand increases economic profit, it will attract firms to enter the industry, shifting each existing firm's demand curve back leftward as they each lose some market share. In the long run, each firm makes zero economic profit, and demand for the firm's product will not increase through advertising.
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Refer to Figure 14-2. If the government delays Gigacom's entry and Xenophone moves first, is a threat by Gigacom that it will provide DSL service if Xenophone provides cable service a credible threat?
A) No, because Gigacom will lose $4.5 million in profits if it carries out its threat. B) Yes, Xenophone stands to lose $3 million in profit. C) Yes, because Gigacom's DSL service will drive Xenophone out of business. D) No, because as a second mover, it has no choice but to abide by the choices of the first mover.
In a call options contract, the
A) seller has the obligation to deliver the instrument at a specified time. B) buyer has the obligation to receive the instrument at a specified time. C) seller may choose whether or not to deliver the instrument at a specified time. D) buyer will choose to exercise his option only if the value of the underlying security falls.
Allocative efficiency occurs in markets when
a. goods are produced using the least amount of society's scarce resources b. goods are produced at the lowest possible average total cost c. goods are produced at the lowest possible marginal cost d. the value to society of the last unit produced equals its marginal cost e. the value to society of the last unit produced is greater than its marginal cost
When taxes increase, consumption
a. decreases as shown by a movement to the left along a given aggregate-demand curve. b. decreases as shown by a shift of the aggregate demand curve to the left. c. increases as shown by a movement to the right along a given aggregate-demand curve. d. increases as shown by a shift of the aggregate demand curve to the right.