Why would a firm in a monopolistically competitive industry advertise?
What will be an ideal response?
Similar to virtually every other business decision, advertising carries with it benefits and costs. While advertising causes the fixed costs to increase, and thereby shifts the average total cost curve upward, advertising also might increase the demand for the company's product by temporarily making people believe that the product is better than some other firm's product. Firms in monopolistic competition frequently advertise extensively in order to differentiate their product from those of their competitors and thereby increase the demand for their particular version of the product.
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For a perfectly competitive market in which firms face an identical constant marginal costs, the amount of consumer surplus increases if
A) market demand decreases. B) market demand increases. C) marginal cost increases. D) none of the above: insufficient information to answer.
Bobby's neighbor is growing a tree that is blocking Bobby's ocean view. Bobby is considering taking his neighbor to court. To Bobby, the tree represents a(n)
a. unclear property right b. public good c. free-rider good d. positive externality e. negative externality