Why do firms in a monopolistically competitive industry advertise?
What will be an ideal response?
In a monopolistically competitive industry, products sold by firms are differentiated or at least perceived to be different by consumers. Other things being equal, product differentiation can result in more profits. Firms can therefore increase their monopoly power and thus profits by differentiating their own products from those of other firms.
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Suppose a company expects prices in general to rise by 5%, but the price of its product rises by 2%. How will the company respond to the price change?
A) It will increase production since it's getting a higher price for the product. B) It will increase production more slowly since it's price is rising more slowly than average. C) It will reduce production since it perceives a relative decline in the demand for its product. D) It will stop production and shut down until prices rise more quickly.
Your indifference curves for good X (horizontal axis) and good Y (vertical axis) are vertical lines because you do not gain any satisfaction from consumption of Y
As the price of X declines, the change in consumption of X is entirely composed of the: A) income effect. B) substitution effect. C) Giffen effect. D) independent good effect.