[amp_mcq option1=”1 and 2″ option2=”Both 1 and 3″ option3=”Both 2 and 3″ option4=”All of the above” correct=”option2″]<\/p>\n
The correct answer is: B. Both 1 and 3<\/strong><\/p>\n Monopolistic firms incur advertisement cost to differentiate their goods from those of their competitors and to avoid price wars.<\/p>\n Monopolistic firms have a certain degree of market power, which means that they can charge a price above marginal cost. However, they also face competition from other firms, so they cannot charge a price that is too high. In order to maintain their market share, monopolistic firms need to differentiate their goods from those of their competitors. This can be done through advertising, which can create a brand identity and make consumers more likely to choose one firm’s product over another.<\/p>\n Advertising can also be used to avoid price wars. If one firm lowers its price, other firms may be forced to do the same in order to remain competitive. This can lead to a cycle of price reductions, which can be harmful to all firms involved. Advertising can help to prevent this by creating a perception of value for consumers. When consumers believe that a product is worth its price, they are less likely to switch to a lower-priced product.<\/p>\n In conclusion, monopolistic firms incur advertisement cost to differentiate their goods from those of their competitors and to avoid price wars.<\/p>\n","protected":false},"excerpt":{"rendered":" [amp_mcq option1=”1 and 2″ option2=”Both 1 and 3″ option3=”Both 2 and 3″ option4=”All of the above” correct=”option2″]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[12],"tags":[],"class_list":["post-43509","post","type-post","status-publish","format-standard","hentry","category-economics","no-featured-image-padding"],"yoast_head":"\n