Final answer:
Advertising in monopolistically competitive firms can increase demand in two ways: by making the demand curve steeper or by shifting it to the right. Successful advertising can lead to higher prices, increased profits, and a greater quantity of products sold.
Step-by-step explanation:
In the framework of monopolistic competition, advertising can help monopolistically competitive firms increase demand for their products in two ways:
- Advertising can cause the perceived demand curve to become more inelastic, making the demand curve steeper. This allows the firm to charge a higher price and increase its profits.
- Advertising can cause demand for the firm's product to increase, shifting the perceived demand curve to the right. This allows the firm to sell a greater quantity of its product.
By successfully differentiating their products through advertising, monopolistically competitive firms can increase their market share and attract more buyers, both of which contribute to increased demand for their products.