Question 1Consider AF from our previous Comprehension Assessment. It was among a handful of firms, engaged in amonopolistically competitive market. Let's assume that the ad elasticity of the demand facing AF is 0.3. Also, assume thatthat the price elasticity of the demand facing AF is -1.4. How much should AF invest in advertisement per one dollar ofsale?About 15 centsAbout 17 centsAbout 19 centsAbout 21 centsQuestion 2All else being constant the price elasticity of the demand facing AF increases (in its absolute value). It goes from -1.4 to-1.6. The optimal amount of ad investments, per dollar of sale, would then:increase by 25%increase by 12.5%○ decline by 12.5%decline by 25%

Answered: Question 1 Consider AF from our…

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter10: Monopolistic Competition And Oligopoly

Section: Chapter Questions

Problem 16CTQ: Would you rather have efficiency or variety? That is, one opportunity cost of the variety of...

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