Principles of Economics 2e
2nd Edition
ISBN: 9781947172364
Author: Steven A. Greenlaw; David Shapiro
Publisher: OpenStax
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Transcribed Image Text:Question 1
Consider AF from our previous Comprehension Assessment. It was among a handful of firms, engaged in a
monopolistically competitive market. Let's assume that the ad elasticity of the demand facing AF is 0.3. Also, assume that
that the price elasticity of the demand facing AF is -1.4. How much should AF invest in advertisement per one dollar of
sale?
About 15 cents
About 17 cents
About 19 cents
About 21 cents
Question 2
All else being constant the price elasticity of the demand facing AF increases (in its absolute value). It goes from -1.4 to
-1.6. The optimal amount of ad investments, per dollar of sale, would then:
increase by 25%
increase by 12.5%
○ decline by 12.5%
decline by 25%
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