A monopolistically competitive firm advertises in order to:

• A. differentiate its product from those of competitors
• B. eliminate all rivals from the market
• C. increase barriers to entry in the market
• D. achieve perfect competition

Answer: (A)

Verified step by step guidance

1. Understand the nature of monopolistic competition: firms sell products that are similar but not identical, which means product differentiation is key.
2. Recognize that advertising in monopolistic competition is primarily used to highlight differences in a firm's product compared to competitors, making consumers perceive it as unique.
3. Evaluate the options: advertising does not eliminate rivals or create barriers to entry because many firms can enter the market freely.
4. Recall that perfect competition assumes no product differentiation and no advertising, so advertising does not lead to perfect competition.
5. Conclude that the main purpose of advertising in monopolistic competition is to differentiate the firm's product from those of competitors.