The figure given below shows the revenue and cost curves of a monopolistically competitive firm.Figure 12.4
MR: Marginal revenue curve
ATC: Average total cost curve
MC: Marginal cost curve
-Because of their brand names, Kodak, IBM, Honda, Daimler-Chrysler, and other well-known firms are able to charge significantly higher prices for their products than their competitors without losing any business. Expenditures made by firms to create brand names:
A)are always inefficient.
B)provide reliability to consumers.
C)lead to monopolies.
D)necessarily lead to deadweight losses.
E)would not exist if information was less costly for firms to obtain than consumers.

Question

The figure given below shows the revenue and cost curves of a monopolistically competitive firm.Figure 12.4
  MR: Marginal revenue curve
ATC: Average total cost curve
MC: Marginal cost curve
-Because of their brand names, Kodak, IBM, Honda, Daimler-Chrysler, and other well-known firms are able to charge significantly higher prices for their products than their competitors without losing any business. Expenditures made by firms to create brand names:
A)are always inefficient. 
B)provide reliability to consumers. 
C)lead to monopolies. 
D)necessarily lead to deadweight losses. 
E)would not exist if information was less costly for firms to obtain than consumers.

Quizplus · Accepted Answer

Expenditures made by firms to create brand names provide reliability to consumers, as consumers are often willing to pay more for products from well-known and trusted brands. This can give these firms some degree of market power, but it does not necessarily lead to monopolies or deadweight losses. It is also not always inefficient, as building a strong brand can be a valuable long-term investment for the firm. However, if information was less costly for firms to obtain than consumers, the need for brand names may be reduced.

The Figure Given Below Shows the Revenue and Cost Curves