Advertising correct answers Refers to any type of promotional activity for a firm
What kind of cost is advertising for a firm? correct answers Fixed cost
Advertising is effective only for what kind of firms? correct answers Firms with market power
Gross profit correct answers Profit before...
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Advertising correct answers Refers to any type of promotional activity for a firm
What kind of cost is advertising for a firm? correct answers Fixed cost
Advertising is effective only for what kind of firms? correct answers Firms with market power
Gross profit correct answers Profit before paying the cost of advertising
Net profit correct answers Gross profit minus the cost of advertising
Goal of advertising correct answers Buy the quantity of advertising that maximizes net profit
Marginal benefit from advertising correct answers The change in gross profit after changing the
amount of advertising
As advertising increases, correct answers The marginal benefit from advertising decreases
The profit maximizing quantity of advertising is determined where correct answers MR=MC
Industry-wide advertising goal correct answers To increase industry demand for the product to
the benefit of all producers
Industry-wide advertising is a correct answers Public good
What defines a public good? correct answers -Non-excludable: all producers in the market can
use it regardless of what they paid for it
-Non-rival: one person's or firm's use does not decrease the quantity available for everyone else
What defines a private good? correct answers -Exclusive: have to pay to use
-Rival: amount of product diminishes as more is used
What equals to the industry-wide marginal benefit of an industry? correct answers The sum of
each firm's marginal benefits.
Free rider correct answers A person or firm that benefits from a good or service without paying
for it.
When would a free-rider problem develop? correct answers In which firms have an incentive not
to pay for benefits they receive.
False advertising correct answers Misrepresents the nature, characteristics, or qualities of goods
or services.
, Inspection goods correct answers Products with characteristics that can be determined prior to
purchase; product can be easily inspected with sight or touch.
Experience goods correct answers Products that a consumer must use in order to assess their
characteristics; product must be bought and tasted to determine it's quality.
Credence goods correct answers Products with characteristics that cannot be evaluated even after
the consumer has used them; for example, annual routine maintenance, which the value is
impossible to determine even after work is done.
False advertising for inspection goods correct answers Advertising cannot successfully
misinforms buyers about inspection goods since it's features can be observed before buying.
False advertising for experience goods correct answers Advertising does have the potential to
mislead first-time buyers about experience goods.
False advertising for credence goods correct answers Credence goods offer the largest potential
for false advertising.
Federal Trade Commission Act correct answers Says false advertising is considered an unfair
and deceptive method of competition and is a violation of section 5 of the Federal Trade
Commission Act.
Lanham Act correct answers Prohibits trademark infringement and false advertising and allows
companies to request injunctions to stop the competitor's advertisements.
Resale price maintenance correct answers Business practice in which manufacturers sell products
to retailers with the explicit condition that the retailers may not resell the products below a
specified price
Benefit of resale price maintenance correct answers Reduces free-riding problems
When should you spend extra money on advertising? correct answers Only if the marginal
benefit is greater than or equal to the marginal cost
How do you allocated money across multiple media? correct answers Reallocate the budget until
the value (gross benefit) of all media sources is equal.
Marginal benefit/Cost=Gross Benefit
Greenwashing correct answers False advertising in the terms of a firm claiming it's business
and/or it's products are environmentally friendly
An auction in which the price announced by the auctioneer DESCENDS is called a correct
answers Dutch auction
In an English auction, correct answers the price increases until nobody else will raise the bid.
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