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Author Question: Why would a firm in a monopolistically competitive industry ever advertise? What will be an ideal ... (Read 55 times)

mckennatimberlake

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on: Jun 29, 2018
Why would a firm in a monopolistically competitive industry ever advertise?
 
  What will be an ideal response?

Question 2

People buy insurance do protect themselves from moral hazard. True or false? Explain.
 
  What will be an ideal response?


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amynguyen1221

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Reply #1 on: Jun 29, 2018
Answer to Question 1

Similar to virtually every other business decision, advertising carries with it benefits and costs. While advertising causes the fixed costs to increase, and thereby shifts the average total cost curve upward, advertising also might increase the demand for the company's product by temporarily making people believe that the product is better than some other firm's product. Firms in monopolistic competition frequently advertise extensively in order to differentiate their product from those of their competitors and thereby increase the demand for their particular version of the product.

Answer to Question 2

The statement is false. In fact, insurance creates a moral hazard problem because a person with insurance coverage for a loss has less incentive than an uninsured person to avoid such a loss. For example, a person with fire insurance for his house has less incentive to take precautions against fire than a person with no fire insurance does.


mckennatimberlake

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Reply 2 on: Jun 29, 2018
Excellent

bitingbit

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Reply 3 on: Yesterday
Gracias!

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