1When a firm advertises in order to increase production demand, the firm must

More than one option may be correct. Please select all the correct options.

A. allocate as much money as possible to minimize the cost of production.

B. choose the level of output at which marginal revenue from the production equals the marginal cost of advertising.

C. allocate as much money as possible to maximize revenue and minimize cost.

D. face a downward sloping average revenue function.

E. attempt to ensure that marginal advertising costs equal to marginal advertising revenues.

2Identify the truthfulness of the following statements. Assume that the given firms face the same market demand curve and the marginal cost curve.

I. If a firm engages in second-degree price discrimination, the firm captures more producer surplus than with uniform pricing.

II. The firm captures the maximum producer surplus by engaging in perfect first-degree price discrimination.

III. In second-degree price discrimination, the producer surplus is either equal to or less than the producer surplus in perfect-first degree price discrimination.

A.I, II, and III are true.

B.I, II, and III are false.

C.I and III are true. II is false.

D.I and II are true. III is false.

E.II and III are true. I is false.

3Which of the following statements are correct?

More than one option is correct. Please select all the correct options.

A. In the Bertrand model of a homogeneous products oligopoly, each firm selects a price to maximize profits, given the prices other firms set. If all firms have the same constant marginal cost, the Bertrand equilibrium price is equal to marginal cost.

B. In the Stackelberg model of oligopoly, one firm (the leader) makes its quantity choice first. The other firm (the follower) observes that output and then makes its price choice.

C. In the Cournot model, the firms select their output simultaneously, noncooperatively, and with no knowledge of each other's plans.

D. If the products are differentiated, the market is an example of monopolistic competition. Oligopoly cannot exist in industries with differentiated products.

E. Perfect competition cannot occur in markets with product differentiation.