A monopolistically competitive firm confronts a downward-sloping demand curve and as a result has some market power.

Question

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A monopolistically competitive firm has some market power because it can differentiate its product and create a perceived difference in the minds of consumers, allowing it to charge a price above marginal cost. However, this market power is limited by the presence of close substitutes and the ability of new firms to enter the market.

A Monopolistically Competitive Firm Confronts a Downward-Sloping Demand Curve and as a Result