Consider firms operating in an industry where the own price elasticity of demand is infinite; that is, Use this information to determine the type of industry in which these firms operate and the optimal advertising-to-sales ratio.
A) Perfectly competitive industry and 0
B) Monopolistically competitive industry and
C) Perfectly competitive industry and
D) Monopolistic industry and 0

Question

Consider firms operating in an industry where the own price elasticity of demand is infinite; that is,  Use this information to determine the type of industry in which these firms operate and the optimal advertising-to-sales ratio.
A) Perfectly competitive industry and 0 
B) Monopolistically competitive industry and 
C) Perfectly competitive industry and 
D) Monopolistic industry and 0

Quizplus · Accepted Answer

A perfectly competitive industry is characterized by infinite own price elasticity of demand, which means that any increase in price would cause consumers to shift to another supplier. Therefore, the optimal advertising-to-sales ratio is zero because firms in a perfectly competitive industry do not need to spend on advertising.

Consider Firms Operating in an Industry Where the Own Price