Which of the following is true of a typical firm in a monopolistically competitive industry?
A)Product differentiation allows a successful firm to emerge as a market leader in the industry.
B)All firms have identical cost structures.
C)The more successful firms have an incentive to merge in order to exert greater market power.
D)Each firm acts independently.

Question

Quizplus · Accepted Answer

In a monopolistically competitive industry, firms have a degree of market power, but because of product differentiation, they also face competition from other firms. Therefore, each firm acts independently to set its own price and output levels based on its own cost structure and product differentiation strategy. While successful firms may have advantages in the market, such as brand recognition or a loyal customer base, there is no incentive for firms to merge to exert greater market power because the industry as a whole is still relatively competitive.

Which of the Following Is True of a Typical Firm