Asked by Viviana Vergara on Jun 11, 2024
Verified
Why do monopolistically competitive firms spend funds for product differentiation and advertising when this practice only adds to the firm's costs?
Product Differentiation
The practice of individualizing a product or service in the marketplace to make it more enticing to a targeted audience.
Monopolistically Competitive
Refers to a market structure where many firms sell similar but not identical products, allowing for some degree of market power and product differentiation.
Advertising
The action or profession of producing advertisements for commercial products or services.
- Comprehend the relevance and implications of marketing strategies in monopolistically competitive environments.
Verified Answer
NM
Natalya MynykJun 13, 2024
Final Answer :
Although product differentiation and advertising add to the firm's costs, they can also increase the demand for its product. If demand increases by more than enough to compensate for the added costs, the firm will improve its profit position. Since the firm has little or no prospect of increasing profit by cutting its price, why not engage in nonprice competition?
Learning Objectives
- Comprehend the relevance and implications of marketing strategies in monopolistically competitive environments.