In a monopolistically competitive market, a firm should advertise to the point at which

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In a monopolistically competitive market, firms have some degree of market power but face competition from other firms selling similar but not identical products. Therefore, firms should advertise to differentiate their product and attract customers, but they should also balance the cost of advertising with the revenue it generates. This means that the optimal level of advertising is where the additional revenue generated by one more dollar of advertising just equals the extra dollar cost of advertising, as stated in choice C. Advertising more than this level would lead to diminishing returns and lower profitability.

In a Monopolistically Competitive Market, a Firm Should Advertise to the Point