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Chapter 25: Q. 25.15 (page 576)

Discuss the special characteristics of an information product, and explain the implications for a producer's short-run average and marginal cost curves- In addition, explain why having a price equal to marginal cost is not feasible for the producer of an information product.

Short Answer

Expert verified

As a result, the average total cost curve slopes from left to right. Simultaneously, the average variable cost equals the marginal cost.

As a result, if the price equals marginal cost, it is always less than the average total cost. It causes the producer to incur a short-term economic loss.

Step by step solution

01

Step 1:Givem data

how this affects a producer's short-run average and marginal cost curves. - having a price equal to marginal cost is not feasible for an information product producer.

02

Step 2:The fixed cost of an informational product 

The fixed cost of an informational product is extremely high, while the average variable cost is very low per unit.

As a result, the average total cost curve slopes from left to right. Simultaneously, the average variable cost equals the marginal cost.

03

Step  3:The marginal cost of an informational product 

The marginal cost of an informational product is less than the average total cost. As a result, if the price equals marginal cost, it is always less than the average total cost. It causes the producer to incur a short-term economic loss.

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Most popular questions from this chapter

Classify each of the following as an example of direct, interactive, and/or mass marketing.

a. The sales force of a pharmaceutical company visits physicians' offices to promote new medications and to answer physicians' questions about treatment options and possible side effects.

b. A mortgage company targets a list of specific low-risk borrowers for a barrage of e-mail messages touting its low interest rates and fees.

c. An online bookseller pays fees to an Internet search engine to post banner ads relating to each search topic chosen by someone conducting a search. In part, this helps promote the bookseller's brand, but clicking on the banner ad also directs the person to a Web page displaying books on the topic that are available for purchase.

d. A national rental car chain runs advertisements on all of the nation's major television networks.

Categorize each of the following as an experience good, a search good, or a credence good or service, and justify your answer.

a. A heavy-duty filing cabinet

b. A restaurant meal

c. A wool overcoat

d. Psychotherapy

Why might serving drinks with uniquely flavored edible straws assist a restaurant in distinguishing its products from competitors' products with similar flavors and textures?

Consider the diagram nearby depicting the demand and cost conditions faced by a monopolistically competitive firm.

a. What are the total revenues, total costs, and economic profits experienced by this firm?

b. Is this firm more likely in short- or long-run equilibrium? Explain.

Take a look at Figure 24-6. Suppose that Qm is 9.5 units per week, that Pm is \(6.10 per unit, and that the average total cost of producing the 9.5 units is \)4.26 per unit. What is the dollar amount of maximized monopoly profits displayed by the green area?
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