In: Economics
How can we resolve the issue surrounding the
desirability of product variety under
monopolistic competition? What role does advertising play as a tool
for firms in this
regard? What would be a reasonable economic model of
advertising?
Under monopolistic competition firm can increase its
expenditures on product variation and selling efforts to increase
the dmand for its product and make it more price elastic.Product
variation is one of the technique used by monopolist,changing
characteristics of the product to make more appealing to
consumers.Selling expenses denotes expenses for advertising the
product.When a firm spend more on product variation and selling
efforts,MR from these efforts exceeds MC and untill MR=MC.