Mod 68: Advertising and Product Differentiation

Advertising is most effective in markets that

• sell multiple products

• have market power

• produce identical products

• have free entry and exit

• are international

A firm in which market structure is most likely to advertise?

• Perfect competition

• Natural monopoly

• Monopolistically competitive

• Stocks

• Cryptocurrency

Advertising is an attempt to affect which of the following?

• input prices

• consumer income

• the price of complementary goods

• the price of substitute goods

• consumer tastes and preferences

Which of the following is true about product differentiation?

• It can be based on location.

• It leads to lower prices.

• It can be based on style but not on quality.

• Its purpose is to differentiate raw materials from normal goods.

• It leads to more consumer choice.

Brand names generally serve to:

• signal quality.

• waste resources.

• confuse consumers.

• decrease information.

• create disloyalty.

Companies often hire celebrities to promote their product because

• celebrities purchase a large share of the product.

• consumers believe whatever celebrities say.

• the celebrities are considered experts on the product.

• celebrities are experts & very knowledgable about a wide variety of topics.

• celebrity endorsements signal brand quality and consumer taste.

Which of the following is true?

• Perfectly competitive firms often benefit from advertising.

• Product differentiation is good for firms but bad for consumers.

• Oligopolies have an incentive to advertise.

• Travelers trust restaurants with familiar brand names when traveling.

• Monopolies can always increase revenue by increasing demand.