Suppose that, due to a successful advertising campaign, a monopolistic competitor experiences an increase in demand for its product. How will that affect the price it charges and the quantity it supplies?

Monopolistic Competition: This is a type of imperfect competition in which a large number of producers sell differentiated items and there is long-term freedom of entry and exit.

Monopolistic Competition: This is a type of imperfect competition in which a large number of producers sell differentiated items and there is long-term freedom of entry and exit.

If a monopolistic competitor experiences an increase in demand for its product as a result of a successful advertising campaign, the monopolist will almost certainly raise prices in order to increase profits, and the cost of advertising will also fall on the consumer, as the firm will never bear the cost of additional advertising.

As a result, if product prices are raised, there is a chance that the amount demanded would decrease. As a result, if the quantity demanded drops, the company will have to cut the quantity it supplies.

A growth in demand will cause the demand curve to shift to the right, and hence the marginal revenue to shift to the right. As a result of the change in marginal revenue, the marginal cost curve will rise up, forming a new intersection between marginal cost and marginal revenue at a higher level of output.

The obtained price should be higher. An increase in quantity will result in an increase in average cost. The price will rise even higher, resulting in a rise in overall profits.

As a result, the overall effect of a successful advertising campaign is as follows.