Multiple Choice
Which of the following statements best describes firms under monopolistic competition?
82
views
13. Monopolistic Competition
Characteristics of Monopolistic Competition
Multiple Choice
Monopolistically competitive firms have some control over price because:
A
they operate in markets with perfectly elastic demand curves
B
there are significant barriers to entry in the market
C
they sell differentiated products that are not perfect substitutes for each other
D
they are the sole producers of a particular good or service
Verified step by step guidance1
Understand the characteristics of monopolistic competition: firms sell products that are differentiated but close substitutes, and there are many sellers with free entry and exit in the market.
Recall that in monopolistic competition, the demand curve faced by each firm is downward sloping, meaning firms have some control over the price because their products are not perfect substitutes.
Contrast this with perfect competition, where firms face perfectly elastic demand curves and have no price-setting power.
Recognize that significant barriers to entry and being the sole producer are characteristics of monopoly, not monopolistic competition.
Conclude that the reason monopolistically competitive firms have some control over price is because they sell differentiated products that are not perfect substitutes for each other.
Related Videos
Related Practice
