Question

Critics of advertising argue that advertising decreases competition while defenders of advertising argue that advertising increases competition

A. True.
B. False.

Answer 1

Advertising in monopolistic competition can either make the demand curve more inelastic or increase demand for a firm's product, leading to increased profits. However, competing firms' advertising efforts can neutralize each other, resulting in no change in the industrial position.

Step-by-step explanation:

In the context of monopolistic competition, the impact of advertising on competition depends on how it affects a firm's perceived demand curve. Advertising can either make the demand curve more inelastic or increase demand for the firm's product. In either case, a successful advertising campaign can allow a firm to sell more or charge higher prices, thereby increasing profits. However, it is important to note that advertising efforts made by competing firms can neutralize each other, resulting in no change in the industrial position.