Does marketing raise costs/profits?
Ask an Economist
Abbreviated Question:
Does marketing raise costs/profits?
Answer:
You asked how a monopolist might use marketing campaigns to increase profit. As you discussed, marketing efforts would likely result in consumers willing to pay more, shifting the demand out. This can only be good news for the firm if ignoring the marketing costs. Let’s remind ourselves that the monopolist is essentially choosing a point on the demand curve that maximizes profit. Since the demand has shifted out, the firm can both produce and charge more than before, which would strictly improve revenue. Exactly how much more to produce (which determines how mu