Question

In: Economics

QUESTION 1 An information product typically has low total fixed costs and high marginal costs. high...

QUESTION 1

An information product typically has

		low total fixed costs and high marginal costs.
		high total fixed costs and high marginal costs.
		low total fixed costs and low marginal costs.
		high total fixed costs and low marginal costs.

QUESTION 2

Advertising intended to reach as many consumers as possible, typically through television, newspaper, or magazine ads is referred to as

		direct marketing.
		mass marketing.
		subliminal advertising.
		interactive advertising.

QUESTION3

If firms in a monopolistically competitive industry are operating with positive economic profit, over time we would see

		some firms entering the industry, causing the market supply curve to shift to the right, lowering price.
		some firms entering the industry, causing the demand curves of the existing firms to shift to the right.
		firms alter their advertising rates until they made at least normal profits.
		some firms entering the industry, causing the demand curves of the existing firms to shift to the left.

QUESTION 4

Which of the following statements is TRUE about the economic profits earned by a monopolistic competitor firm in the long run?

		Economic profits can be positive since firms have some degree of monopoly power.
		Economic profits will tend towards zero since positive profits will attract new firms into the industry.
		Economic profits can be negative since there is so much competition in the market.
		Economic profits will be positive since the firm has a downward sloping demand curve.

Expert Solution

1. An information product typically has high total fixed costs and low marginal costs. An information product is a kind of intellectual property content which is stored in digital form. It is sold on the internet. Audio recordings, digital video recordings, e-books or a combination of all these are examples of information products.

Producing information products is very expensive whereas reproducing them is cheap. Therefore, the first copy has very high fixed costs as compared to the marginal cost of each additional copy.

Therefore, the correct option is d.

2. Advertising intended to reach as many consumers as possible, typically through television, newspaper, or magazine ads is referred to as mass marketing.

In mass marketing firms use media to reach as many consumers as possible.

In direct marketing is basically personalied marketing which targeted at specific consumers. It is done using phone calls, postal mails and e-mails.

Interactive marketing allows a consumer to search for more information of the product and then directly placing the order for product.

Subliminal advertising consits of the promotional messages that the receiver of the message is not aware of.

Therefore the correct option is b.

3.If firms in a monopolistically competitive industry are operating with positive economic profit, over time we would see some firms entering the industry, causing the demand curves of the existing firms to shift to the left. Positive economic profits would attract competition and new firms will enter into the market. When new firms enter into the market the demand curves of the existing firms will shift to the left. Also the marginal revenue of the firms will shift to the left and the profits would fall.

Hence, the correct option is d.

4. In case of monopolistic competition economic profits will tend towards zero since positive profits will attract new firms into the industry. If there is a positive economic profit in a monopolistically competitive market then it is done away with the entry of new firms. So economic profits will tend towards zero. Hence the correct option is b.

Rahul Sunny answered 2 years ago

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