ASS5 KEY - ECONOMICS 2010 ASSIGNMENT 5 This assignment...

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ECONOMICS 2010 ASSIGNMENT 5 This assignment covers chapters 16 and 17 of the text 1. WHAT IS THE PRICE OF OUTPUT FOR A FIRM OPERATING IN A MONOPOLISTIC COMPETITIVE MARKET IN THE SHORT RUN RELATIVE TO OPERATING IN THE SAME TYPE OF MARKET IN THE LONG RUN IF ENTRY INTO SUCH A MARKET BY OTHER FIRMS IS RELATIVELY EASY? PRICE > MARGINAL COST > AVERAGE TOTAL COST , OR P > MC > ATC, FOR THE SHORT RUN FOR THE LONG RUN, PRICE > MARGINAL COST = AVERAGE TOTAL COST OR P > MC = ATC 2. HOW DOES A MONOPOLISTICALLY COMPETITIVE FIRM MAINTAIN MARKET SHARE OF THE MARKET IN THE SHORT RUN AND KEEP FROM GETTING FORCED TO MOVE TO THE LONG RUN POSITION? THE MONOPOLISTIC COMPETITIVE FIRM HAS TO CONTINUALLY DIFFERENTIATE THEIR PRODUCT IN ORDER TO MAINTAIN MARKET SHARE AND KEEP PRODUCT MONOPOLY AT LEAST IN THE SHORT RUN - -- IF THIS DOES NOT HAPPEN, THEN THERE IS CONTINUAL ENTRY BY CHALLENGER FIRMS AND MARKET SHARE OF THE INCUMBENT FIRM IS REDUCED WITH LONG RUN PROFIT CONSEQUENCES 3. ANSWER THE FOLLOWING QUESTIONS: a) HOW MIGHT ADVERTISING MAKE MARKETS LESS COMPETITIVE? IN THIS CASE THE ADVERTISING ATTEMPTS TO CONVINVE CONSUMERS THAT THE PRODUCTS ARE DIFFERENT (DIFFERENTIATION) AND ATTEMPTS TO CONVEY THAT THERE ARE NO SUBSTITUTES FOR THE PARTICULAR PRODUCT BEING ADVERTISING IN A N ATTEMPT TO MAINTAIN A MONOPOLY MARKET OF THE PRESUMED DIFFERENTIATED PRODUCT FROM OTHER SIMILAR PRODUCTS.
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b) HOW MIGHT ADVERTISING MAKE MARKETS MORE COMPETITIVE? THIS ARGUMENT IN FAVOR OF ADVERTISING SUGGESTS THAT ADVERTISING PROVIDES INFORMATION TO CONSUMERS ABOUT PRODUCTS AND DIFFERENT PRODUCTS THAT HAVE SIMILAR USES. ADVERTISING MAKES CONSUMERS MORE FULLY INFORMED ABOUT ALL THE FIRMS IN THE MARKET AND CUSTOMERS CAN MORE EASILY TAKE ADVANTAGE OF PRICE DIFFERENCES. 4.
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ASS5 KEY - ECONOMICS 2010 ASSIGNMENT 5 This assignment...

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