A Textbook Publisher Is in Monopolistic Competition

question 118

Multiple Choice

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. Compared to the situation if it does not advertise, if the firm advertises, the profit-maximizing price

• A) rises by $10.
• B) falls by $10.
• C) rises by $5.
• D) does not change.

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Definitions:

Central Route

A method of persuasion that relies on the audience's careful and rational evaluation of the arguments presented in a communication.

Surface Cues

External or superficial features of an object or situation that can influence perception and decision-making.

Source Attractiveness

A concept in communication and marketing that suggests messages are more effective when the source is viewed as physically appealing, relatable, or likeable.

Mental Energy Levels

The capacity to perform mental activities, characterized by cognitive alertness, focus, and overall psychological vitality.