15.3   Explain why advertising costs are high and why firms use brand names in monopolistic competition.

 15.3   Explain why advertising costs are high and why firms use brand names in monopolistic competition.

A.  Firms in monopolistic competition continually innovate and develop new products in order to obtain economic profit.

B.  Advertising expenses increase total costs, but they might lower average total costs if they increase the quantity sold by a large enough amount.

C.  Advertising expenses might increase demand, but they might decrease demand if these same expenses spur other competitors to increase competition.

D.  Whether monopolistic competition is inefficient depends on the value society places on enjoying a diversity of similar products.

Take the optional post-study bonus point quizzes on Monopolistic Competition on Saturday following Module 9.

Study Modules 6 through 9 in preparation for the review and Exam #2 during Module 10

Take the optional pre-study bonus point quizzes on Oligopoly on Sunday preceding Module 11.

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