Mikes, a firm in monopolistic competition, produces bikes. With no advertising, Mikes profit-maximizing output is 500 bikes

Question:

Mike’s, a firm in monopolistic competition, produces bikes. With no advertising, Mike’s profit-maximizing output is 500 bikes a day and the price is $100 a bike. Now all firms begin to advertise. With advertising, Mike’s maximizes profit by producing 1,000 bikes a day and charging $50 a bike. How does advertising change Mike’s markup and excess capacity?

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