Principles of Microeconomics, 7th Edition

Published by South-Western College
ISBN 10: 128516590X
ISBN 13: 978-1-28516-590-5

Chapter 16 - Part V - Monopolistic Competition - Problems and Applications - Page 346: 9

Answer

a) A family owned restaurant b) A manufacturer of cars c) A company that invented a very comfortable razor.

Work Step by Step

a) A family-owned restaurant needs to heavily advertise in order to attract customers on a daily basis. A family-owned farm doesn't need much advertising because its business isn't related to as many customers as possible, but to a few good ones. b) A manufacturer of cars needs to advertise in order to convince people to buy its cars rather than its competitor's cars. A manufacturer of forklifts doesn't need to advertise much; it usually sells to businesses and focuses on maintaining good quality and good relations with these businesses. c) A company that invented a very comfortable razor will advertise because its product is actually a good one and has a good selling point. Because it is comfortable, probably it is generating lots of revenues and advertising costs doesn't concern the business too much. The other company probably is generating fewer revenues and cannot afford to advertise. Instead, it should focus on improving its product.
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