Consider firms operating in an industry where the own price elasticity of demand is infinite; that is,E_Q,P = −  .Use this information to determine the type of industry in which these firms operate and the optimal advertising-to-sales ratio. A) Perfectly competitive industry and 0 B) Monopolistically competitive industry and  C) Perfectly competitive industry and  D) Monopolistic industry and 0

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In a perfectly competitive industry, the own price elasticity of demand is infinite, meaning consumers have perfect substitutes and will switch from one product to another at any price increase. Therefore, firms cannot influence market price and have no incentive to spend on advertising, leading to an optimal advertising-to-sales ratio of 0.

Consider Firms Operating in an Industry Where the Own Price