Question

14. Aside from advertising, how can monopolistically competitive firms increase demand for their products?

15. Make a case for why monopolistically competitive industries never reach long-run equilibrium.

Answer 1

14) Monopolistically competitive firms are the ones which sell similar products and are large in number. These firms sell products which are not perfect substitutes . These firms resort to advertising and other such modes to increase demand for produces. One such method is product differentiation , As we know these products are not perfect substitutes . So having a unique brand or any other such feature with the product which differentiates it from others. This is also achieved when  consumer have brand loyalty towards the product which helps to achieve higher sales.

Eg: Though dominos and PIzza hut both sell pizzas but have a differentiated logo and different types of pizzas which helps them increase their demand .

15) Monopolistically competition are the type of firms selling differentiated products . This means that consumers have a brand loyalty towards the product. Long run profits are earned when the products are not differentiated in monopolistic competition. In such a case when the products are diffferentiated the monopolistic competitive firms never reach their long run equilibrium of zero economic profits because they earn profits based on the loyalty of consumer

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