The figure given below shows the revenue and cost curves of a monopolistically competitive firm.Figure 12.4
MR: Marginal revenue curve
ATC: Average total cost curve
MC: Marginal cost curve
-Consumers are willing to pay a higher price for a product with a brand name as opposed to a generic product because:
A)a brand name provides a signal about a product's quality and reliability.
B)they are willing to pay more for the privilege of watching the firm's commercials.
C)a product with a brand name is always of higher quality.
D)consumers maximize utility by purchasing the most expensive products.
E)consumers are irrational.

Question

The figure given below shows the revenue and cost curves of a monopolistically competitive firm.Figure 12.4
  MR: Marginal revenue curve
ATC: Average total cost curve
MC: Marginal cost curve
-Consumers are willing to pay a higher price for a product with a brand name as opposed to a generic product because:
A)a brand name provides a signal about a product's quality and reliability. 
B)they are willing to pay more for the privilege of watching the firm's commercials. 
C)a product with a brand name is always of higher quality. 
D)consumers maximize utility by purchasing the most expensive products. 
E)consumers are irrational.

Quizplus · Accepted Answer

A brand name provides a signal about a product's quality and reliability, which increases consumers' willingness to pay a higher price for the product as opposed to a generic product. This is one of the reasons why firms in monopolistically competitive markets can have some market power and charge a higher price than the marginal cost of production.

The Figure Given Below Shows the Revenue and Cost Curves