Final answer:
Though initially appearing negative, unfavorable variance in advertising can lead to increased profits by differentiating a firm's products and making demand more inelastic or by shifting the demand curve to the right, thus enabling higher sales volume or prices.
Step-by-step explanation:
Unfavorable variance in advertising can still have a positive effect on profit if it leads to increased market differentiation and customer awareness. As A.C. Pigou suggests, advertising aims to make consumers believe that there's a distinction between products, even in monopolistic competition. There are two primary effects of advertising in such markets: making a firm's perceived demand curve more inelastic or increasing the firm's product demand by shifting the perceived demand curve to the right.
A successful advertising campaign can enable a firm to sell more or set higher prices, ultimately enhancing profits. Despite the initial cost of advertising, the long-term benefits could outweigh the immediate negative variance if the firm can differentiate its products effectively from its competitors’.