Principles of Economics- Mankiw (5th) 375

Principles of Economics- Mankiw (5th) 375 - CHAPTER 17...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
CHAPTER 17 MONOPOLISTIC COMPETITION 385 ADVERTISING It is nearly impossible to go through a typical day in a modern economy without being bombarded with advertising. Whether you are reading a newspaper, watch- ing television, or driving down the highway, some firm will try to convince you to buy its product. Such behavior is a natural feature of monopolistic competition. When firms sell differentiated products and charge prices above marginal cost, each firm has an incentive to advertise in order to attract more buyers to its partic- ular product. The amount of advertising varies substantially across products. Firms that sell highly differentiated consumer goods, such as over-the-counter drugs, perfumes, soft drinks, razor blades, breakfast cereals, and dog food, typically spend between 10 and 20 percent of revenue for advertising. Firms that sell industrial products, such as drill presses and communications satellites, typically spend very little on advertising. And firms that sell homogeneous products, such as wheat, peanuts, or
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 07/30/2010 for the course ECON 120 taught by Professor Abijian during the Spring '10 term at Mesa CC.

Ask a homework question - tutors are online