Which of the following best indicates a successful advertising campaign by a monopolistically competitive firm?

• A. An increase in the firm's demand curve, allowing it to charge a higher price and sell more output
• B. A reduction in the number of competitors in the market
• C. A shift of the firm's supply curve to the right
• D. A decrease in the firm's marginal cost of production

Answer: (A)

Verified step by step guidance

1. Understand the market structure: In monopolistic competition, firms sell differentiated products and have some control over their prices due to product differentiation.
2. Recall the effect of advertising: Advertising aims to increase consumer awareness and preference for a firm's product, which typically increases the demand for that firm's product.
3. Identify the impact on the demand curve: A successful advertising campaign shifts the firm's demand curve to the right, meaning at every price, consumers want to buy more of the product.
4. Analyze the consequences of the demand shift: With a rightward shift in demand, the firm can charge a higher price and sell a larger quantity, improving its market position and profitability.
5. Compare with other options: A reduction in competitors affects market structure but is not a direct result of advertising; a supply curve shift relates to production costs, not advertising; a decrease in marginal cost is about production efficiency, not advertising impact.