A textbook publisher is in monopolistic competition. If the firm spends nothing on advertising, it can sell no books at $100 a book, but for each $10 cut in price, the quantity of books it can sells increases by 20 books a day. The firm’s total fixed cost is $2,400 a day. Its average variable cost and marginal cost is a constant $20 per book. If teh firm spends $1,200 a day on advertising, in can increase the quantity of books sold at each price by 50%.

If the publisher advertises, its profit maximizing level of output is:

a. 120 books per day.

b. 80 books per day.

c. 160 books per day.

d. 100 books per day.

e. 240 books per day.

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