Question 1

A product that must be actually consumed before the quality of the product can be determined is a(n)

Accepted Answer

An experience good is a product that cannot be evaluated for quality prior to consumption or use. The quality can only be judged based on the experience of using or consuming the product. Examples of experience goods include restaurants, movies, and vacations.

Question 2

The manufacturers of information products typically

Accepted Answer

Manufacturers of information products typically have high fixed costs, such as those associated with research and development, marketing, and intellectual property. Once these costs are covered, the cost of producing additional units is relatively low (i.e. low marginal costs), as there are no physical materials or resources required for production.

Question 3

Advertising intended to induce a consumer to discover a previously unknown taste or preference is

Accepted Answer

The answer of Advertising intended to induce a consumer to...

Question 4

When a pharmaceutical company advertises that its allergy medication is clinically proven to alleviate hay fever symptoms,the pharmaceutical company is engaging in

Accepted Answer

The pharmaceutical company is providing information about their product's effectiveness, so it is informational advertising.

Question 5

In the long run,the price of information products in monopolistically competitive markets will be equal to

Accepted Answer

In the long run, in monopolistically competitive markets, firms will produce at an output level where marginal revenue equals marginal cost (MR=MC). At this level of output, the average total cost (ATC) curve will be tangent to the demand curve. Therefore, in the long run, the price of information products in monopolistically competitive markets will be equal to ATC.

Question 6

The production of information products is characterized by

Accepted Answer

The production of information products typically involves relatively low fixed costs (such as salaries, rent, and equipment) but relatively high development costs (such as research, writing, and editing). However, once an information product (such as an e-book, software program, or online course) has been developed, it can often be distributed at a low marginal cost (such as through digital downloads or online access). This means that the cost of producing each additional unit of the information product is relatively low, leading to economies of scale and potentially high profit margins.

Question 7

The ATC curve for a firm that produces an information product

Accepted Answer

The ATC (Average Total Cost) curve for a firm that produces an information product typically slopes downward because the average variable cost (AVC) tends to be constant due to the nature of information goods (low marginal cost after the initial product is developed). The average fixed cost (AFC) decreases as output increases because the fixed costs are spread over more units, leading to a downward-sloping ATC curve when ATC is calculated as the sum of AVC and AFC.

Question 8

Which of the following statements is generally TRUE about information products?

Accepted Answer

Information products typically have high fixed costs, such as production and development costs, but once the product is created, the marginal costs of producing additional units are low. This is because the cost of producing each additional copy, such as digital downloads or e-books, is relatively low compared to the initial fixed costs of producing the product.

Question 9

If the producer of an information product engages in marginal cost pricing,it earns

Accepted Answer

The answer of If the producer of an information product...

Question 10

Which of the following conditions best explain the short-run economies of operation associated with production of an information product?

Accepted Answer

In the short-run, the fixed costs such as rent, equipment, and salaries, remain constant regardless of the level of production. This causes the average fixed cost (AFC) to slope downward with an increase in the level of production, as the fixed costs are spread over a larger quantity of output. On the other hand, the variable costs such as labor and materials, will increase with an increase in production, causing the average variable cost (AVC) to slope upward. However, if the increase in output leads to the spreading of the fixed costs over a larger quantity of output, this will cause the average total cost (ATC) to decrease. Therefore, option B is the best choice as it states that AVC is constant (which is not true), and AFC slopes downward, which is correct.

Question 11

There is no incentive for additional producers of an information product to enter the industry when the price charged for these products by each firm already in the industry is equal to

Accepted Answer

The answer of There is no incentive for additional producers...

Question 12

Explain the difference between informational advertising and persuasive advertising.Give an example of a product that would be the subject of each type of advertising and explain why that type of advertising fits the product.

Accepted Answer

The answer of Explain the difference between informational advertising and...

Question 13

Why would Sunkist incur substantial costs to advertise and establish a brand name when the quality of its oranges can easily be evaluated by consumers?

Accepted Answer

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Question 14

In a long-run equilibrium in a monopolistically competitive industry that produces information products,revenues are equal to the ________ costs of developing,producing,and selling the product.

Accepted Answer

In long-run equilibrium, firms in a monopolistically competitive industry are earning zero economic profit. This means that the firm's total revenue is equal to its total costs, including both fixed and variable costs of developing, producing, and selling the product. Therefore, the best choice is A) Total.

Question 15

If a monopolistically competitive firm selling an information product engages in marginal cost pricing,it will

Accepted Answer

If a monopolistically competitive firm engages in marginal cost pricing, it sets its price equal to its marginal cost in order to maximize profits. However, since the firm has market power but faces competition, its demand curve is downward sloping and its marginal revenue curve lies below it. Therefore, marginal cost pricing will only generate enough revenue to cover variable costs, not fixed costs. As a result, the firm will fail to earn sufficient revenues to cover its fixed costs and may eventually exit the market.

Question 16

Explain how advertising can act as a signal.

Accepted Answer

The answer of Explain how advertising can act as a...

Question 17

Products such as office supplies are examples of

Accepted Answer

Office supplies are generally considered search goods, as consumers can easily compare the features, price, and quality of different brands and products before making a purchasing decision.

Question 18

Out of all advertising spending,the largest share goes to

Accepted Answer

The answer of Out of all advertising spending,the largest share...

Question 19

Explain why the amount that firms spend on advertising depends on the characteristics of their products.

Accepted Answer

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Question 20

A good that entails relatively high fixed costs associated with the use of knowledge and other information-intensive inputs as key factors of production is

Accepted Answer

An information product typically involves the use of knowledge and other information-intensive inputs as key factors of production, which can involve high fixed costs. Examples of information products include software, digital media, and research reports. Logo goods, search goods, and persuasive goods may also involve knowledge inputs to some extent, but their fixed costs are typically lower compared to those of information products.

Quiz 12: Monopolistic Competition