Question

How does advertising campaign impact monopolistic competition? Explain briefly.

Answer 1

In monopolistic competition, advertising causes a firm’s perceived demand curve to become more inelastic. It causes the perceived demand curve to become steeper. Advertising may also cause demand for the firm’s product to increase. That is, it causes the firm’s perceived demand curve to shift to the right. In either case, a successful advertising campaign may allow a firm to sell either a greater quantity or to charge a higher price, or both, and thus increase its profits.

Advertising monopolistic competition may allow a firm to sell either a greater quantity or to charge a higher price, or both, and thus increase its profits.