Corpus Industries produces a product at constant marginal cost that it sells in a monopolistically competitive market. In an attempt to bolster profits, the manager hired an economist to estimate the demand for its product. She found that the demand for the firm's product is log-linear, with an own price elasticity of demand of -10 and an advertising elasticity of demand of 0.2. To maximize profits, what fraction of revenues should the firm spend on advertising?

Suppose you operate in a monopoly environment and you set your price inorder to achieve maximum prots. Is your demand elastic, unitary elastic, or inelastic? Does your answer change if you were in a monopolistically competitive market? What happens to the elasticity when you go from a monopolistic market to a monopolistically competitive one? Explain and give an example.   Retailer companies sell many products for which manufacturers have a sug-gested retail price printed on the package. Is there an economic reason for this price? If you are the manager of a retailing outlet, what factors will determine whether you should charge the suggested retail price or some higher or lower price?

Sort the following situations as to whether or not advertising would be economically efficient or inefficient. Fish-Fil-A, a fast food fish-stick chain, uses flounders to advertise their slogan "Eat Mor Feesh" to promote their various fish products. An advertisement in the Yellow Pages states that Bride and Co. have been in the bridal consulting business for over 40 years. An advertisement is run on the benefits of drinking coffee to reduce the risk of prostate cancer. Tillamook runs an ad in Vermont claiming it makes the best cheddar cheese in the United States. An ad run on Craigslist states that a mattress is in good condition, lightly used, with minimal staining. Which of the following is true regarding advertisements? Inefficient Efficient Perfectly competitive firms have the most incentive to advertise to increase their consumer base. Advertising is only effective if the firm has some degree of market power. Advertising causes consumers to focus solely on one product in question,…

Bob competes in a monopolistically competitive market. Suppose some new firms enter the market, causing his perceived demand curve to shift. The following tables show Original Demand Curve his demand curves, before and after the change, and his cost information. Price Quantity TC Assume that Bob can only choose from the quantities of output given in the table. By how much will his profit change after these new firms enter the market? $33 $20,000 $32 1,000 $30,000 $31 2,000 $45,000 $30 3,000 $70,000 $29 4,000 $100,000 New Demand Curve Price Quantity TC $30 $20,000 $29 1,000 $30,000 $28 2,000 $45,000 $27 3,000 $70,000 $26 4,000 $100,000 O his profits will not change O decrease by $9,000 O increase by $11,000 O decrease by $11,000