Mike's a firm in monopolistic competition, produces bikes. With no advertising, Mike's profit-maximizing output is 500 bikes a day and the price is $100 a bike. The graph shows Mike's demand curve, marginal revenue curve, marginal cost curve, and average total cost curve with no advertising Now all firms begin to advertise With advertising, Mike's maximizes profit by producing more than 500 bikes a day and charging less than $100 a bike. How does advertising change Mike's markup and excess capacity? Mike's markup Mike's excess capacity CEZANN when it advertises. when it advertises. OA. is larger, does not change OB. does not change; does not change OC. does not change; is smaller OD. is larger, is larger OE. is smaller, is smaller 175 75- 50- 25- Price and opel alias per bike) ATC 0 100 200 300 400 500 600 700 800 900 10 Quantity (bikes per day)

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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Mike's a firm in monopolistic competition, produces bikes.
With no advertising, Mike's profit-maximizing output is 500
bikes a day and the price is $100 a bike.
The graph shows Mike's demand curve, marginal
revenue curve, marginal cost curve, and average total cost
curve with no advertising
Now all firms begin to advertise. With advertising, Mike's
maximizes profit by producing more than 500 bikes a day
and charging less than $100 a bike.
How does advertising change Mike's markup and
excess capacity?
Mike's markup
Mike's excess capacity
when it advertises.
when it advertises.
A. is larger, does not change
OB. does not change; does not change
OC. does not change; is smaller
OD. is larger, is larger
OE. is smaller, is smaller
150-
75-
50-
25-
104
Price and coal tollas per bike)
MC
ATC
WARR
100 200 300 400 500 600 700 800 900 10
Quantity (bikes per day)
Transcribed Image Text:Mike's a firm in monopolistic competition, produces bikes. With no advertising, Mike's profit-maximizing output is 500 bikes a day and the price is $100 a bike. The graph shows Mike's demand curve, marginal revenue curve, marginal cost curve, and average total cost curve with no advertising Now all firms begin to advertise. With advertising, Mike's maximizes profit by producing more than 500 bikes a day and charging less than $100 a bike. How does advertising change Mike's markup and excess capacity? Mike's markup Mike's excess capacity when it advertises. when it advertises. A. is larger, does not change OB. does not change; does not change OC. does not change; is smaller OD. is larger, is larger OE. is smaller, is smaller 150- 75- 50- 25- 104 Price and coal tollas per bike) MC ATC WARR 100 200 300 400 500 600 700 800 900 10 Quantity (bikes per day)
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