Suppose that Luigi is a monopolistic competitor whose marginal cost of a jacket is $100 and at one of the firm's shops, total fixed cost is $200 a day. The profit maximizing number of jackets sold in this shop is 20 a day. Then the shops nearby from other retailers start advertising their jackets. The Luigi shop decides to spend $500 a day advertising its jackets, and its prodit maximizing number of jackets sold jumps to 50 a day. 1. What is the shop's average total cost of a jacket sold before the advertising begins? 2. What is the shop's average total cost of a jacket sold after advertising? 3. Before advertising Suppos that the price elasticity of demand is 2. Can you compute the price of a Luigi jacket? Please, compute the amount of maximal profits. 4. After advertising: Suppose that the price elasticity of demand equals 4. Can you compute Luigi's economic profit?

Suppose that Luigi is a monopolistic competitor whose marginal cost of a jacket is $100 and at one of the firm's shops, total fixed cost is $200 a day. The profit maximizing number of jackets sold in this shop is 20 a day. Then the shops nearby from other retailers start advertising their jackets. The Luigi shop decides to spend $500 a day advertising its jackets, and its prodit maximizing number of jackets sold jumps to 50 a day. 1. What is the shop's average total cost of a jacket sold before the advertising begins? 2. What is the shop's average total cost of a jacket sold after advertising? 3. Before advertising Suppos that the price elasticity of demand is 2. Can you compute the price of a Luigi jacket? Please, compute the amount of maximal profits. 4. After advertising: Suppose that the price elasticity of demand equals 4. Can you compute Luigi's economic profit?

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter14: Monopolistic Competition And Product Differentiation

Section: Chapter Questions

Problem 5P

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