Why do you never see firms in a perfectly competitive market advertise their product?
What will be an ideal response?
Advertising has costs and benefits for the typical firm. The cost is the expense of running the advertising and the forgone value of the next best use of the firm's funds. The benefit of advertising is the increased probability that the firm can increase the demand for its good or service. Therein lies the problem for perfectly competitive firms. Perfectly competitive firms sell an identical product. Who is going to believe an asparagus farmer in California that runs a television ad proclaiming that her asparagus is better than other farmers? If demand is not increased by the ad, which is likely, the only thing that is certain is that the farmer's costs have increased. Along with the higher costs comes decreased profit and an increased likelihood of going out of business.
You might also like to view...
Assuming that the Federal Reserve Banks sell $40 million in government securities to commercial banks and the reserve requirement is 20%, then the effect will be to reduce ________.
A. the money supply by potentially $200 million B. excess reserves by $8 million C. excess reserves by $200 million D. the money supply by potentially $400 million
Refer to the table above. The gross domestic product of the country is ________
A) $402,000 B) $452,000 C) $554,000 D) $352,000
Suppose the president of a college argues that a 25 percent tuition increase will raise revenues for the college. It can be concluded that the president thinks that demand to attend this college is:
a. unitary elastic. b. perfectly elastic. c. inelastic, but not perfectly inelastic. d. elastic.
The closer we are to the production possibilities frontier and the farther away we are from the origin,
A. the more unemployment there is. B. the less unemployment there is. C. the only way to produce more guns will be to give up some butter production. D. the only way to produce more butter will be to give up some gun production.