Why would a firm in a monopolistically competitive industry ...

[pragya sharda]

Why would a firm in a monopolistically competitive industry advertise?
 
  What will be an ideal response?

Question 2

The basic reason that a competitive unregulated market produces an inefficient amount of a good with an external cost is because
 
  A) producers cannot measure marginal social cost.
  B) producers do not pay the external cost.
  C) the general public does not care about external costs.
  D) external costs are not a political issue.
  E) the external cost is paid by consumers rather than producers.

[Beatricemm]

Answer to Question 1

Similar to virtually every other business decision, advertising carries with it benefits and costs. While advertising causes the fixed costs to increase, and thereby shifts the average total cost curve upward, advertising also might increase the demand for the company's product by temporarily making people believe that the product is better than some other firm's product. Firms in monopolistic competition frequently advertise extensively in order to differentiate their product from those of their competitors and thereby increase the demand for their particular version of the product.

Answer to Question 2

B

[pragya sharda]

Thank you

[Beatricemm]

No problemo