Multiple Choice
Which of the following businesses is most likely operating in a monopolistic competition market structure?
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13. Monopolistic Competition
Characteristics of Monopolistic Competition
Multiple Choice
Monopolistically competitive firms are able to have some control over the _____ of their products.
A
production technology
B
market demand
C
price
D
quantity supplied
Verified step by step guidance1
Understand the nature of monopolistic competition: firms sell products that are differentiated from each other, which gives them some degree of market power.
Recall that in monopolistic competition, firms face a downward-sloping demand curve for their product, meaning they can influence the price by adjusting the quantity they supply.
Recognize that unlike perfect competition, where firms are price takers, monopolistically competitive firms have some control over the price because their products are not perfect substitutes.
Identify that the key aspect firms control is the price of their product, not the production technology (which is usually given) or the overall market demand (which is determined by all consumers).
Conclude that the correct answer is 'price' because monopolistically competitive firms can set prices above marginal cost due to product differentiation.
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