Question

1. How do fims differentiate there products from closely related substitutes? 2. Under Monopolistic Competition: explain the firm's strategy in advertising to lower the elasticity of demand for its product. Illustrate below, the shape of the fim's demand curve before and after lowering the elasticity of demand. 3. Unlike a perfectly competitive fim, the monopolistic competitive firm is able to (a little) control price. Discuss, why, the position of the firm in the long run, is similar to that of a perfectly competitive one. 4. List the characteristics of a monopolistically competitive market structure. 5. Describe the firm's decision in choosing the profit maximizing or loss minimizing level of output. Illustrate.

Answer 1

Answer to question 1 is provided :

1) Product differentiation is a marketing strategy followed by firms who produce closely related substitutes . Firms differentiate their products by many techniques . The most common technique is branding . Every firm has a particular brand . KFC and Mc Donalds both sell similar food like burgers but they have their own brand followers . Product differentiation is also done through advertising , packaging etc .