A Textbook Publisher Is in Monopolistic Competition

question 95

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, its economic profit

• A) increases by $400.
• B) decreases by $400.
• C) doubles.
• D) is the same as with no advertising.

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Definitions:

College Football

A form of American football played by teams of student athletes fielded by American universities, colleges, and military academies.

Academic Mission

An educational initiative or goal pursued by institutions or individuals focusing on scholarly activities and learning.

Yale

An elite Ivy League university located in New Haven, Connecticut, known for its rich history, academic excellence, and influential alumni.

Profitable

Generating a financial gain or benefit, exceeding the cost of operation.