Final answer:
Advertising helps firms differentiate their products, influencing consumers' intangible preferences and possibly leading to increased profits through higher sales volumes or prices.
Step-by-step explanation:
Advertising plays a crucial role in setting differentiated products apart in a market characterized by monopolistic competition. It helps shape consumers' intangible preferences and fortifies brand recognition. Through advertising, firms aim to either make their perceived demand curve more inelastic, making it resistant to price changes, or to increase the demand itself by shifting the perceived demand curve to the right.
Intangible aspects such as reputation, service quality, and satisfaction guarantees further aid in the differentiation of products. Advertising influences these aspects greatly, establishing a strong brand preference among consumers even when they may not differentiate the product based on tangible attributes alone. Ultimately, a successful advertising strategy can enable a firm to sell more quantities at higher prices, thus increasing profits.