The figure given below shows the revenue and cost curves of a monopolistically competitive firm.Figure 12.4
MR: Marginal revenue curve
ATC: Average total cost curve
MC: Marginal cost curve
-Advertising, brand names, packaging, and celebrity endorsements all occur in monopolistically competitive markets because:
A)significant barriers to entry exist in the real world.
B)in the real world, there are very few markets with many firms.
C)that gives the producer some command over the price of their products.
D)product differentiation seldom occurs in the real world.
E)monopolistically competitive firms have an incentive to spend as much money as possible compared to their rivals.

Question

The figure given below shows the revenue and cost curves of a monopolistically competitive firm.Figure 12.4
  MR: Marginal revenue curve
ATC: Average total cost curve
MC: Marginal cost curve
-Advertising, brand names, packaging, and celebrity endorsements all occur in monopolistically competitive markets because:
A)significant barriers to entry exist in the real world. 
B)in the real world, there are very few markets with many firms. 
C)that gives the producer some command over the price of their products. 
D)product differentiation seldom occurs in the real world. 
E)monopolistically competitive firms have an incentive to spend as much money as possible compared to their rivals.

Quizplus · Accepted Answer

Monopolistically competitive firms have some degree of market power, as they produce differentiated products that are not perfect substitutes for their competitors. Therefore, they have some ability to influence the price of their products, which is why they may engage in advertising, brand names, packaging, and celebrity endorsements to enhance their product differentiation and make their products more appealing to consumers. This helps them to maintain or increase their market share and profitability. A, B, D, and E are not accurate reasons for why these practices occur in monopolistically competitive markets.

The Figure Given Below Shows the Revenue and Cost Curves