Question

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?

Short answer

Because of this situation, the prices of the product sold by the monopolistic competitor will increase.

Step-by-step solution

Step 1. Explanation.

Because of the successful advertising, the demand for the product rises the monopolistic competitor will increase the price of the product to earn more profit on the given quantity of product because in economics seller have a mind of earning more profits and here the demand is also in favor of the seller or monopolistic competitor.

Step 2.Graphical behavior.

A rightward movement in the demand curve and a rightward change in marginal revenue will occur as demand rises. The marginal cost curve will go upward as the marginal income curve shifts. The new pricing should be more expensive. The move along the average cost curve to a higher level of average cost will be caused by the rise in quantity. The price will rise, resulting in a rise in overall earnings.