Question

Score: 0 of 1 pt Concept: Advertising 1 Many firms advertise. What effect does advertising have on firm profits? One possible effect of advertising is to O A. increase profits by decreasing the cost of production B. increase profits by making the demand curve for the product more inelastic O C. increase profits by making the supply curve for the product more inelastic D. increase profits by allowing the firm to produce the same amount of output with fewer inputs E. increase profits by shifting the demand curve for the product to the left Chck to soloct your anar and ton cick Check Answ javascript.dof xercise(9)

Answer 1

B. Increase profit by making the demand curve for the product more inelastic

Explanation

Advertisement is very important for the monopolistic competitive firm. When firm spends on advertising it gets more profit. Advertising helps to Awre the costumer and it results in more demand. Here through advertising demand curve becomes more inelastic or less elastic. The reason for the demand more inelastic is increase the demand.

We can see it through following diagram

Before advertising:

мC 12 11 10 ATC AR MR 2 1 1 2 3 4 5 6 7 8 9 10 Quantity Cost and Revenue

after advertising demand curve.

MC 12 11 10- ATC AR MR 2 2 3 5 6 7 8 9 10 Quantity Cost and Revenue

Here in above graph AR is demand curve.

We can see that how after advertising demand curve changes.