A Textbook Publisher Is in Monopolistic Competition

question 109

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. The firm will

• A) advertise because advertising will increase its economic profit.
• B) not advertise because advertising will lower its economic profit.
• C) advertise because advertising will decrease its economic loss.
• D) not advertise because advertising will increase its economic loss.

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Definitions:

Causal Thinking

involves understanding the cause-effect relationship between two events or situations, believing one event is the result of the occurrence of the other event.

Value Rationality

A concept in sociology and economics that refers to behavior motivated by a consistent set of ethical or ideological beliefs, as opposed to actions motivated by ends-means calculations.

Ethics

The branch of philosophy that deals with questions about morality and the principles guiding right and wrong conduct.

Affective Action

Actions motivated by feelings, emotions, or affective states rather than rational calculations or norms.