Advertising is profitable for a firm when:
A)it increases search costs for the consumers of the firm's product.
B)it raises the price of the good being advertised.
C)it makes the demand for the firm's product more inelastic.
D)it reduces the barriers to the entry of new firms.

Question

Quizplus · Accepted Answer

Advertising can make the demand for the firm's product more inelastic by creating brand loyalty and differentiation, which means that consumers are less sensitive to price changes and more likely to continue purchasing the advertised product. This can result in higher profits for the firm. Choices A, B, and D are incorrect because they do not necessarily lead to increased profits for the firm.

Advertising Is Profitable for a Firm When