Which of the following statements about firm XYZ in monopolistic competition when it decides to advertise its product is correct?

Question

Which of the following statements about firm  XYZ  in monopolistic competition when it decides to advertise its product is correct?

Accepted Answer

Advertising that makes the demand for the firm's product more elastic can increase the firm's profit-maximizing quantity and decrease its markup.

Answer

Advertising is inefficient unless it enables consumers to make a better product choice.

Answer

Advertising has no effect on the firm's markup.

Answer

Advertising that encourages all firms in the market to advertise makes demand for the firm's product more elastic and increase its markup.

Answer

Advertising always increases the demand for the firm's product.

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