1.(5 points) Manufacturers of laundry detergent and dishwashing soap reinvest a relatively large percentage of their sales revenues on advertising campaigns. Most of these advertisements that appear on television stress the fact that their product is "New and Improved." What sort of a market (perfectly competitive, monopoly, monopolistically competitive) is laundry detergent and why are the firms advertising? Please give an explanation.

2. (5 points) You are the manager of a small U.S. firm that sells nails in a perfectly competitive U.S. market (the nails you sell are a standardized commodity; stores view your nails as identical to those available from hundred of other firms). You are concerned about two events you recently learned about through trade publications:

(i) the overall market supply of nails will decrease by 2 percent due to the exit by foreign competitors, and

(ii) due to a growing U.S. economy, the overall market demand for nails will increase by 2 percent.

Based on this information, should you plan to increase or decrease your production of nails in the short run? Please explain.