The goal of product differentiation and advertising in monopolistic competition is to make
A) the firm allocatively efficient even if it is not productively efficient.
B) the firm productively efficient even if it is not allocatively efficient.
C) price less of a factor and product differences more of a factor in consumer purchases.
D) price more of a factor and product differences less of a factor in consumer purchases.

Question

Quizplus · Accepted Answer

In monopolistic competition, firms differentiate their products to create a perceived difference in the eyes of consumers, which makes price less of a factor and product differences more of a factor in consumer purchases. Advertising is used to inform consumers of these product differences and create brand loyalty, which can lead to higher prices and profits for the firm. Therefore, the goal is to make product differentiation more important than price in consumer purchases.

The Goal of Product Differentiation and Advertising in Monopolistic Competition