A Textbook Publisher Is in Monopolistic Competition

Multiple Choice

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 sell 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 the firm spends $1,200 a day on advertising, it can increase the quantity of books sold at each price by 50 percent. If the firm advertises, its maximum economic profit is

A) zero.
B) $800.
C) $1,200.
D) -$400.