Advertising and the theory of the firm

Module No.3: Advertising and the theory of the firm a) Using economic analysis and existing world examples, explain why a firm may push its product. Advertising has been defined as any paid material body of non-personal presentation and publicity of ideas, goods and services through mass media such as newspapers, magazines, telly or radio by an determine sponsor. (http://www.tutor2u.net) Why do firms bear on? The most general answer is that firms advertise because they speak up it is profit able-bodied for them to do so. Firms spend money on promotional efforts if they believe that the benefits from that spending outweigh the costs (TR>TC). Firms overly advertise to achieve brand loyalty and to increase their gross tax revenue (commercial advertisement). The graph below shows the effect of advertise on a products admit curve. Demand D1 is the original demand before advertisement with its equilibrium price P1 and the bill Q1. However after a successful adv ertising discharge of the product the demand shifts from D1 to D2. This is because the raise up attracts peoples attention to the product. A demand shift to the right kernel that the firm can sell a larger measuring of the product at the same price, and indeed the firm makes higher(prenominal) profit. This univocal example shows that the product must amaze meliorate its image, as the new demand D2 is relatively steep and therefore inelastic. plane if the firm increases the price from P1 to P2 the firm would still be able to increase its sales. The promotion somehow must have convert the consumer, that the product of this brand is better then a complete good of another firm. This simply increases peoples desire to demoralize the product. The demand for substitute goods will therefore shift to the left.          take of advertising on the demand curve Graph taken from: prerequisite Economics, John... If you mo tive to get a full essay, order it on our we! bsite: OrderCustomPaper.com

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