Which of the following statements is true about advertising by a monopolistically competitive firm?
A)Since the monopolistic competitor, like the perfect competitor, makes zero profit in the long run, it is a waste of resources to advertise its products.
B)Advertising could make the monopolistic competitor's demand more inelastic, but advertising has no effect on a perfect competitor's demand.
C)Advertising will be more beneficial if a monopolistic competitor colludes with other firms to advertise the products of the industry as a whole rather than an individual firm's product.
D)Monopolistically competitive firms tend to shun advertising because advertising draws attention to the variety of differentiated products available in the industry.

Question

Quizplus · Accepted Answer

Advertising by a monopolistically competitive firm can make its demand more inelastic, meaning that customers are less likely to switch to a competitor's product due to the perceived uniqueness of the advertised product. However, advertising does not have a significant effect on the demand of a perfect competitor, who sells an identical product, leaving no room for differentiation.

Which of the Following Statements Is True About Advertising by a Monopolistically