Explain why the amount that firms spend on advertising depends on the characteristics of their products
What will be an ideal response?
There are three types of goods: search goods, whose quality can be evaluated by consumers in advance of a purchase; experience goods, whose quality can be evaluated only after consumption; and credence goods, whose quality cannot be assessed by consumers without assistance. For search goods, firms are likely to use informational advertising that emphasizes the features of the product. For experience goods, firms are likely to use persuasive advertising to induce consumers to try the products. For credence goods, firms are likely to use a mix of informational and persuasive advertising.
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Jimmy is very excited about the costume party with a 1990s theme. He is planning to dress up as MC Hammer but is also considering going as a lifeguard from Baywatch. His opportunity cost of arriving dressed like MC Hammer is:
A. the cost of parachute pants that MC Hammer would wear. B. the savings from not purchasing red swimming trunks. C. giving up the alternative of dressing like a lifeguard. D. there is no opportunity cost because he attended the party either way.
The adverse selection problem is least likely in which of the following occupations?
a. lawyer b. barber c. college professor d. marketing analyst e. manager
The basic approach in marginal analysis is to compare a policy's total benefits with its total costs
a. True b. False Indicate whether the statement is true or false
When graphed, total fixed cost will
a. slope upward to the right at a constant positive slope b. first decrease and then increase c. first increase and then decrease d. slope down forever e. be a horizontal line