Asked by Vanessa Grossman on May 05, 2024
Verified
If a firm in a monopolistically competitive market successfully uses advertising to decrease the elasticity of demand for its product, the firm will
A) be able to increase its markup over marginal cost.
B) eventually have to reduce price to remain competitive.
C) increase the welfare of society.
D) reduce its average total cost.
Elasticity Of Demand
A measure of how much the quantity demanded of a good responds to a change in price, indicating the sensitivity of consumers to price changes.
Markup
The difference between the cost of a good or service and its selling price, expressed as a percentage over the cost.
- Examine the strategies employed by firms in monopolistic competition to impact demand elasticity and wield influence over market power through advertising.
Verified Answer
DT
Dereje TilayeMay 10, 2024
Final Answer :
A
Explanation :
When a firm in a monopolistically competitive market uses advertising to decrease the elasticity of demand for its product, it means consumers become less sensitive to price changes for that specific product. This allows the firm to increase its price without losing a significant number of customers, thereby increasing its markup over marginal cost.
Learning Objectives
- Examine the strategies employed by firms in monopolistic competition to impact demand elasticity and wield influence over market power through advertising.