Question

When would advertising be least effective for an individual firm?
A. in a perfectly competitive industry
B. in a monopolistically competitive industry
C. in an oligopolistic industry
D. in a monopoly industry
E. Never; advertising is equally effective in all industries.

Answer 1

Advertising would be least effective in case of perfect competition. Firms in a perfectly competitive market are price takers and they are bound to sell their products at the market price. Also, the perfectly competitive market is characterized by perfect information and the consumers have complete knowledge of the market.

Therefore, there is no point of advertising as the advertisements will only push up the costs of the firms. That means, advertising will be least effective in perfective competition.

Hence, correct answer is option $\mathrm{A}$.