Explain the role of advertising in monopolistic competition. Describe how advertising by all firms in a monopolistically competitive industry impacts a firm's ATC curve, its MC curve, its demand curve, and its MR curve
What will be an ideal response?
In order to maintain (or regain) economic profit, a firm in monopolistic competition must continually develop new products that are unique and/or of high quality (or make consumers believe this). Advertising lets firms signal this information. So all firms in monopolistic competition tend to advertise extensively.
Advertising is a fixed cost and it shifts the ATC curve upward. Even though advertising shifts to the ATC curve upward, the total average cost might be lower if it increases the amount sold by enough. Because advertising is a fixed cost, it has no effect on the marginal cost, so the MC curve does not change. Because all firms advertise, advertising might or might not increase demand for a specific firm. When all firms advertise, the demand curve and marginal revenue curve for a specific firm become more elastic.
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If U.S. official reserves increase, is the official settlements account balance positive, negative, or unaffected?
What will be an ideal response?
There are two restaurants that serve equally good Mexican food in a small college town. One of them charges an average of $7 per plate, and usually you have to wait an hour to be seated. The other restaurant charges an average of $9 per plate, and you can usually be seated right away. How does the cost of consumption compare across these two restaurants?
a. For people with a very high opportunity cost of time compared to others, the restaurant with the higher money price makes more sense because they are willing to accept a higher money price in return for a lower time price. b. For people with a low opportunity cost of time compared to others, the restaurant with the higher money price makes more sense because they do not have to pay a high time price. c. For people with a very high opportunity cost of time compared to others, the restaurant with the lower money price makes more sense because they are relatively more willing to pay a high time price. d. The restaurant with the lower money price makes more sense to both high opportunity cost of time and low opportunity cost of time consumers.
The compensation savers receive for waiting on their consumption is the
A. expected rate of inflation. B. nominal interest rate minus the real interest rate. C. nominal interest rate. D. real interest rate.
The general rule for profit maximization in a firm is to
A. set marginal revenue equal to marginal cost. B. reduce fixed costs by expanding output. C. set average cost at its minimum. D. maximize sales revenue.