If a Firm in a Monopolistically Competitive Market Uses Advertising

question 29

Multiple Choice

If a firm in a monopolistically competitive market uses advertising to lower the price elasticity of demand for its product,

• A) it will likely increase its price.
• B) it will likely lead to a monopoly, as other firms exit the market.
• C) it will increase the level of competition in the market.
• D) none of the above

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Definitions:

Market Supply Curve

Represents the total quantity of a good or service that all producers in a market are willing to sell at different price levels, at a given time.

Shift

A change in the position of a demand or supply curve, indicating a change in the quantity demanded or supplied at every price.

Subsidy

Financial aid supplied by the government to an industry or business, with the aim of keeping prices low for consumers or aiding the business to be competitive.

Efficiency Loss

Economic costs that arise when market equilibrium is not achieved, or when resources are not allocated optimally, leading to waste or suboptimal outcomes.