What is the profit-maximizing output of the monopolist shown below?
What price do they set? _______________________
What is the monopolist’s markup over the competitive price? ________________
Why will this price not fall?
Levi’s has an advertising slogan: “Quality never goes out of style.” Consumers can buy other kinds of jeans, including off-brands. The manufacturers of off-brand, or generic, jeans do not advertise. Assume that the average total cost of producing Levi’s and generic jeans is the same.
Create a graph showing the price (labeled as P1) that Levi’s changes. Also, identify the markup.
How does Levi’s advertising affect their profits?
Do Levi’s or the generic producers have a stronger incentive to maintain quality control? Why?