How can we resolve the issue surrounding the desirability of product variety under monopolistic competition? What...

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?

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Expert Solution

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.

Rahul Sunny answered 1 year ago

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