Use the following to answer question 43: Figure: The Restaurant Market Price, ma

Question

Use the following to answer question 43: Figure: The Restaurant Market Price, marginal revenue, marginal cost, average total cost a MC ATC MR Quantity (per period) 43. (Figure: The Restaurant Market) The figure The Restaurant Market shows curves facing a typical restaurant. Assume that many firms, differentiated products, and easy entry and exit characterize the restaurant industry. The restaurant shown here will maximize profits at quantity: A) B) D) Not enough information is given to answer the question. 44. Monopolistic competitors offen hire a celebrity spokesperson to advertise their product. One reason such advertising works is that: A) celebrities are better informed about the relative merits of different products than the rest of us. consumers assume that the celebrity has researched the product and that the claims being made on his or her behalf are true. the fact that a firm is willing to pay the large fees associated with celebrity advertising signals consumers that it is a major company and that it is therefore likely to have a reliable product. celebrities encourage other firms to enter the industry. B) C) D)

Explanation / Answer

43). Q2. Point Q2. This is because here MR = MC which is the profit maximizing level of output

44). C). Consumers generally know that celebrities charge huge fee, and thus only a big firm which is reliable will be able to pay this fee. And thus the anser (c)

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