If the principal effect of advertising is to decrease the elasticity of demand, the critics argue that firms will be able to:

Question

Quizplus · Accepted Answer

If advertising decreases the elasticity of demand, firms can charge a larger mark-up over marginal cost because consumers are less responsive to price changes. This allows firms to increase their profits and potentially their advertising budget. Therefore, the correct answer is D.

If the Principal Effect of Advertising Is to Decrease the Elasticity