Author Question: In a market characterized by a single seller and many buyers, will a seller's initiative to improve ... (Read 134 times)

oliviahorn72 · **on:** Jun 30, 2018

In a market characterized by a single seller and many buyers, will a seller's initiative to improve the quality of its product at a higher cost of production be profitable?

Question 2

Product differentiation in monopolistically competitive markets ensures that ____ in equilibrium.
a. marginal cost will exceed average revenue
b. price will exceed marginal cost
c. average variable cost will be declining
d. marginal revenue will equal average total cost

snackralk · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

The success of the strategy will depend on the relationship between changes in the cost of production and changes in the buyer's valuation. If the increase in the cost of production is lower compared to the increase in the buyer's valuation, the strategy will be profitable. However, if the increase in the buyer's valuation of the improved good is lower than the increase in the cost of production then the strategy will prove to be unprofitable.

Answer to Question 2

b