Question 10 of 40 jun Read each statement below and label it as true or false. A
ID: 1103758 • Letter: Q
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Question 10 of 40 jun Read each statement below and label it as true or false. A monopolistic competitor, much like a firm in perfect competition, sells its product at a point where price is equal to marginal cost. Advertising can play a role as an indirect signal of product quality to Monopolistically competitive industries are more likely to make use of advertising to create products that catch on in mainstream popularity than monopolists, since in both cases the firm demand curves are downward sloping, and at the saige profit maximizing point marginal ost is equal to revenue In the short term, a monopolistic competitor will make a profit if the curve is above the average total cost curve at some point.Explanation / Answer
(1) FALSE. A firm in the monopolistic competitive industry sets MR=MC for the profit maximization. And since the firm faces a downward sloping demand curve so P>MR and so P>MC.
(2) FALSE . In equilibrium, neither price nor advertising signal the quality of newly introduced goods. Advertising of established products can be a signal of quality, but if it is, it must be an imperfect signal leaving residual uncertainty that influences consumers’ repurchase decision
(3) TRUE. Advertising helps the firms which produce differentiated goods to gain consumers and thus increases profits. In perfect competition firms produce identical goods so no advertising is required.
(4) FALSE. In monopolistic competitive industry, firms can enter upto the point where firms earn normal profits. So in monopolistic competitive industry, each firm earns the same profit as a perfectly competitive firm.
(5) TRUE. SInce firms choose output so that MR=MC and if demand curve is above the average cost curve which implies that price is greater than average cost and so in short run firm makes a profit.
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