A firm will increase its spending on advertising until
A) it has monopolized the market.
B) it has deterred all future entry.
C) the marginal benefit of advertising is zero.
D) the marginal benefit of advertising equals the marginal cost of advertising.

Question

Quizplus · Accepted Answer

A firm will increase its spending on advertising until the marginal benefit of advertising equals the marginal cost of advertising. Any further increase in advertising spending would result in a decrease in marginal benefit, making it inefficient. This is the optimal point where the firm maximizes its profit. Choices A and B are incorrect as monopolizing the market or deterring future entry through advertising is not the ultimate goal of advertising. Choice C is also incorrect as the marginal benefit of advertising cannot be zero as there will always be some increase in sales or revenue with an increase in advertising spending.

A Firm Will Increase Its Spending on Advertising Until