Skip to content

CA Foundation · Business Economics · Price Determination in Different Markets

Under monopolistic competition, firms spend heavily on advertising and branding mainly because they want to:

Firms in monopolistic competition advertise to shift their demand curve outward and make it less elastic by building brand loyalty for their differentiated product. This gives them some pricing power, though it does not remove competition or let them avoid covering costs.

  1. AMake the products of rival firms identical to their own
  2. BIncrease the number of firms in the industry
  3. CShift and make less elastic the demand for their own differentiated productCorrect
  4. DEliminate the need to cover average cost in the long run

Explanation

Selling costs such as advertising aim to increase demand for the firm's product and make it less price-sensitive by building brand loyalty. They do not make products identical, which would remove differentiation, and they do not remove the need to cover costs in the long run.

Did you get it right without looking?

One question tells you little. A timed set on Price Determination in Different Markets shows your real accuracy, how long you take and where you lose marks.

Practise Price Determination in Different MarketsFree diagnostic mock

More Price Determination in Different Markets questions