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11) Advertising costs of a monopolistically competitive firm are A) greater
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# Question : 11) Advertising costs of a monopolistically competitive firm are A) greater : 1418025

11) Advertising costs of a monopolistically competitive firm are

A) greater than a monopoly and the same as a perfectly competitive firm.

B) greater than a perfectly competitive firm.

C) less than a perfectly competitive firm.

D) the same as a monopoly.

E) less than a monopoly.

12) A textbook publisher is in monopolistic competition. If the firm spends nothing on advertising, it can sell no books at \$100 a book, but for each \$10 cut in price, the quantity of books it can sell increases by 20 books a day. The firm's total fixed cost is \$2,400 a day. Its average variable cost and marginal cost is a constant \$20 per book. If the firm spends \$1,200 a day on advertising, it can increase the quantity of books sold at each price by 50 percent. If the publisher advertises, its profit maximizing level of output is

A) 120 books per day.

B) 80 books per day.

C) 160 books per day.

D) 100 books per day.

E) 240 books per day.

13) A textbook publisher is in monopolistic competition. If the firm spends nothing on advertising, it can sell no books at \$100 a book, but for each \$10 cut in price, the quantity of books it can sell increases by 20 books a day. The firm's total fixed cost is \$2,400 a day. Its average variable cost and marginal cost is a constant \$20 per book. If the firm spends \$1,200 a day on advertising, it can increase the quantity of books sold at each price by 50 percent. If the publisher advertises, its profit maximizing price per book is

A) \$40.

B) \$50.

C) \$60.

D) \$70.

E) \$20.

Use the information below to answer the following question.

Fact 14.3.1

Suppose that at one of the Talbot's shops, marginal cost of a coat is constant at \$150, and total fixed cost is \$3,000 a day. The shop maximizes its profit by selling 15 coats a day at \$500 per coat. Then the shops nearby increase their advertising. The Talbot shop responds by spending \$1,500 a day more on advertising its coats. As a result, its profit-maximizing number of coats sold increases to 25 a day at \$400 per coat.

14) Refer to Fact 14.3.1. As a result of increased advertising, Talbot's markup

A) decreases by \$100.

B) increases by \$50.

C) increases by \$75.

D) decreases by \$60.

E) decreases by an unknown amount.

15) Other than by adjusting price, the two main ways in which a firm in monopolistic competition competes with other firms are by ________ and ________.

A) innovation and product development; advertising

B) taking surveys to discover the wants of its consumers; opening up new retail outlets

C) changing its method of production; relocating its factories to areas with lower wage rates

D) decreasing its workforce; using new technology

E) advertising; producing the efficient quantity

16) Product innovation and development is efficient if the marginal social cost of a new and improved product ________ its marginal social benefit.

In monopolistic competition marginal revenue is less than price, so product innovation is probably ________ to its efficient level.

A) is greater than; not pushed

B) equals; pushed

C) is greater than; pushed

D) equals; not pushed

E) is less than; not pushed

A) are never efficient.

B) can be efficient but are not always efficient.

C) are equally efficient in monopolistically competitive markets and perfectly competitive markets.

D) are always efficient.

E) are more efficient in perfectly competitive markets than in monopolistically competitive markets.

Use the information below to answer the following questions.

Fact 14.3.2

Suppose that Tommy Hilfiger's marginal cost of a jacket is \$100 (a constant marginal cost) and at one of the firm's shops, total fixed cost is \$2,000 a day.

The profit-maximizing number of jackets sold in this shop is 20 a day.

Then the shops nearby start to advertise their jackets. The Tommy Hilfiger shop now spends \$2,000 a day advertising its jackets, and its profit-maximizing number of jackets sold jumps to 50 a day.

18) Refer to Fact.14.3.2. If advertising decreases demand and makes demand more elastic, the price of a Tommy Hilfiger jacket ________. If advertising increases demand and makes demand less elastic, the price of a Tommy Hilfiger jacket ________.

If price falls, markup ________.

If price rises, markup ________.

A) falls; rises; rises; falls

B) rises; falls; falls; rises

C) falls; rises; falls; rises

D) rises; falls; rises; falls

E) falls; rises; does not change; does not change

19) Refer to Fact 14.3.2. Tommy Hilfiger uses advertising as a signal because

A) when Tommy Hilfiger advertises, it forces its competitors to advertise, which raises the competition's average total cost and increases the possibility of the competition incurring an economic loss and leaving the market.

B) only firms that can afford advertising have longevity and will be able to honor any future obligations to its customers.

C) by spending large sums of advertising Tommy Hilfiger is signaling that its jackets are high quality.

D) advertising encourages people to spend regardless of the quality.

E) advertising always increases demand and creates a more efficient market.

20) Refer to Fact 14.3.2. Having a brand name helps Tommy Hilfiger increase its economic profit because

A) the goal of a brand name is to encourage people to buy just one good. After the initial purchases, Tommy Hilfiger can decrease quality and produce goods at a lower average total cost, which increases economic profit.

B) in every type of market, consumers are most comfortable when buying from a firm with a well-known brand name. And the greater the number of consumers, the greater is the economic profit.

C) a brand name provides an incentive to achieve high and consistent quality, and consumers will purchase goods from Tommy Hilfiger rather than from an unknown producer because they know what to expect from Tommy Hilfiger.

D) having a brand name usually leads to a monopoly.

E) none of the above.

21) Calvin is a custom picture framer. His total fixed cost is \$110 a day, and his average variable cost is \$1 a frame. He is maximizing his profit by selling 22 picture frames a day for \$6 a frame.

Few people know about Calvin's Framery. Calvin thinks that if he spends \$10 a day on advertising, he can increase his market and sell 44 picture frames a day for \$6 a frame.

A) cannot increase his economic profit by advertising because advertising increases his average total cost.

B) cannot increase his economic profit by advertising because advertising increases his total cost.

C) can increase his economic profit by advertising.

D) can increase his economic profit by advertising only if he raises the price of a picture frame.

E) can increase his economic profit by advertising only if he can lower his total variable cost.

22) Firms in monopolistic competition constantly develop new products in an effort to

A) increase the demand for their product.

B) make the demand for their product unit elastic.

C) increase the marginal cost of their product.

D) decrease average total cost.

E) decrease average fixed cost.

23) Excess capacity and high advertising expenditures are encountered in

A) monopoly.

B) oligopoly.

C) monopolistic competition.

D) perfect competition.

E) all markets.

24) Monopolistically competitive firms engaging in advertising will definitely achieve which of the following?

A) an increase in demand

B) an increase in average total cost

C) an increase in total cost

D) Both B and C are correct.

E) A, B, and C are correct.

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