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Well, if you think of literature as an artistic or realistic (Realism) depiction of reality, then literary criticism and literary theory (which is more abstract) is the study of how we interpret literary representations (mimesis) of reality. Even if we're talking about fiction and poetry, literary criticism is the study of the representation of different worlds - different stories about experience.
I think the purpose of literary criticism has broadened especially over the last century with the additions of Feminism, Marxism, Psychoanalysis, Gay and Gender Studies, Postcolonialism, and the more abstract Deconstruction, Post-Structuralism and Postmodernism. So the purpose was once the study of authorial intent, Historicism (the interpretation of History through literature) and style (New Criticism, Formalism and Structuralism) and now it includes all manner of social, economic, cultural and philosophical interpretations of literature and the application of that analysis is also used to study life itself. Literary theory has not just used other disciplines to augment its own analysis. Other areas in academia have adopted literary theories: for example, deconstruction is used in Law and justice. This is controversial since Derrida's deconstruction is predicated upon indeterminacy, but my point is that literary criticism is no longer a closed discipline practiced by elitist scholars only to be read by other elitist scholars. It has opened up and overlaps with lots of other disciplines: philosophy, psychology, history, sociology, economics.
Literary criticism refers to analysis and judgment of works of literature. It tries to interpret specific works of literature, and also helps us to identify and understand different ways of examining and interpreting them. Study of literary criticism contributes to maintenance of high standards of literature. In our day to day life study of criticism of literary works enables us to became aware of the present and past works of literature, and to determine if we would like to read them in original.
Study of criticism also enables writers to understand the factors that affect the quality and character of literary work and in this way improve their ability to produce better literary works.
Literary criticism is certainly of value for the reasons mentioned by previous posters. After all, it is a way of opening new avenues of thinking for readers as well as increasing their understanding of the various perspectives of a work of literature. Literary criticism is a way of having a "conversation" about a work, placing the work not only in its own context, but also in the context of the thinking of the time of the criticism. Indeed, literary criticism helps to keep good literature alive.
In addition to the excellent posted comments, literary criticism helps reader develop critical thinking skills. Criticisms take the reader to a higher level of cognitive thought by evaluating what the critic says, and then applying it to the piece of literature in ways that the reader may not have originally thought. It then becomes useful in class discussion and/or composition. Evaluating material and then synthesizing it into an original piece of writing is one of the most effective ways to study literature.
Literary criticism allows us to seethings from different perspectives. It allows us to gain a far wider insight into a work of literature than from our5 own perspective. That way, we gain a greater understanding of the world in which we live.
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