A Textbook Publisher Is in Monopolistic Competition

question 176

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. If the publisher advertises, its profit maximizing price is

• A) $40.
• B) $50.
• C) $60.
• D) $70.

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Definitions:

Profit-Maximizing Price

The price at which a company can sell its product to achieve the maximum possible profit.

Perm

A chemical hair treatment used to add curls or waves to the hair, or the city located in the European part of Russia, known for its cultural and historical significance.

Economic Profits

The variance between total financial gains and total charges, taking into account both manifest and implied costs.

Long Run

A time frame during which all production elements and expenses can change, enabling complete adjustment within the industry to any alterations.