When a monopolistically competitive firm advertises,it is attempting to increase
A)The demand and decrease the price elasticity of demand for its product.
B)The demand and increase the price elasticity of demand for its product.
C)Long-run profits.

Question

Quizplus · Accepted Answer

When a monopolistically competitive firm advertises, it is attempting to create product differentiation and increase the demand for its product. By doing so, the firm can charge a higher price and decrease the price elasticity of demand for its product. This can lead to increased profits in the short-run. However, in the long-run, other firms may also enter the market and create similar products, leading to competition and decreased profits.

When a Monopolistically Competitive Firm Advertises,it Is Attempting to Increase