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Author Question: Explain why advertising is very important to a monopolistically competitive firm but not to a ... (Read 34 times)

danielfitts88

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on: Jun 30, 2018
Explain why advertising is very important to a monopolistically competitive firm but not to a perfectly competitive firm or a monopolistic firm.

Question 2

Which of the following activities can create an external cost?
 a. Honking continuously while driving past a hospital.
  b. Reducing the use of plastic carry bags while shopping.
  c. Burying garbage under the soil and planting trees on it.
  d. Using smog controls on private cars.


pami445

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Reply #1 on: Jun 30, 2018
Answer to Question 1

A monopolistically competitive firm advertises in order to increase demand for its goods and make demand more inelastic. In contrast, a perfectly competitive firm sells a homogeneous good and can sell all it wants at the market price. As such, it has no reason to advertise at all. While a monopolistic firm could potentially increase demand for its good, advertising is generally not as important as a form of non-price competition because there are no other firms with which to compete in the industry.

Answer to Question 2

A


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