1. When advertising expenditure is increased, which of the aggregate and average (cost and revenue) curves shift their positions? Explain the direction of the shift. As an industry moves from being a monopoly to a monopolistically competitive one (due to the entry of new competitors as the monopoly’s patents expire, for example), what happens to the elasticity of the demand curve facing the firm? Why?
2. What is the service or product supplied by your firm? If there are more than one, pick one. What is the market structure for the market in which your firm supplies this product? Why? What does economic theory tell you about the short-run and long-run economic profits for a firm operating in this market structure?Do you observe that for your firm? Why or why not?
3. In the presence of excess capacity, firms sometimes launch new brands in an effort to increase their profits. Why would a monopolist not launch a new brand? Why do you think that launching a new brand is often done in monopolistic competition? Has your firm launched a new brand (provided a slightly differentiated service) in an effort to increase profits? Should it do/have done so? Why or why not?
4. Why is it that firms can earn profits in the long run in monopoly and oligopoly but not in monopolistic competition and perfect competition? What can firms do in monopolistic competition or perfect competition to make the short run last as long as possible since they can only make profits in the short run? Have you observed any firms employ such tactics? Can you give some examples?