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...
Scarcity is a(n):
a. problem only in industrialized economies. b. condition measured by the quantity of goods available. c. subjective concept that human wants can never be satisfied. d. problem only in poor economies.
Which of the following is assumed in time series regression?
A. There is no perfect collinearity between the explanatory variables. B. The explanatory variables are contemporaneously endogenous. C. The error terms are contemporaneously heteroskedastic. D. The explanatory variables cannot have temporal ordering.