One of the reasons for low cross-price elasticity in monopolistic competition and high cross-price elasticity in perfect competition is that
A)Firms in perfect competition differentiate their products.
B)In monopolistic competition consumers loyal to particular brands view other available products as poor substitutes.
C)Consumers do not have perfect substitutes in perfect competition.
D)To save money,firms in monopolistic competition do not advertise.

Question

Quizplus · Accepted Answer

In monopolistic competition, firms differentiate their products to make them appear unique to consumers. As a result, consumers may become loyal to a particular brand and view other products as poor substitutes, leading to low cross-price elasticity. In perfect competition, however, firms produce homogeneous products, meaning that consumers are more likely to find perfect substitutes from other firms, leading to higher cross-price elasticity.

One of the Reasons for Low Cross-Price Elasticity in Monopolistic