A monopolistic competitor behaving in a profit-maximizing way will
A) not advertise.
B) advertise as much as it can in order to increase its sales.
C) advertise to the point where the additional sales from advertising equal the additional marginal costs of the product.
D) advertise to the point where the additional revenue from one more dollar of advertising just equals the extra dollar cost of advertising.
Answer: D
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Refer to Figure 4-7. The figure above represents the market for iced tea. Assume that this is a competitive market. At an output of 10,000 units
A) the marginal benefit of iced tea is greater than the marginal cost; therefore, output is inefficiently low. B) the marginal cost of iced tea is greater than the marginal benefit; therefore, output is inefficiently low. C) producers should lower the price to $1 in order to sell the quantity demanded of 10,000. D) the marginal benefit of iced tea is greater than the marginal cost; therefore, output is inefficiently high.
The market demand function for ice cream is Qd = 10 - 2P and the market supply function for ice cream is Qs = 4P - 2, where both quantities are measured in millions of gallons per year. What is the aggregate surplus at the competitive market equilibrium?
A. $4.5 million B. $9 million C. $13.5 million D. $27 million