Question

Why would a monopolistically competitive firm​ advertise? A monopolistically competitive firm would advertise to A. shift its demand curve to the left. B. decrease the price it charges. C. make its demand curve more inelastic. D. reduce the total cost of production. E. reduce product differentiation.

Answer 1

Answer:

C) Make its demand curve more inelastic

Explanation:

A product is inelastic if the demand for it does not change a lot when price changes. For example, gasoline is a perfect example of a good with inelastic demand because customers buy gasoline even if the price rises.

A firm will always want to have inelastic products because this will assure revenue even if production costs have to be raised, and the sales price therefore increases.

Advertising can achieve that by increasing brand loyalty, product differentiation, or good perception about the product. Customers may feel that no matter how high the price is, the product is worth it.