If a monopolistic competitive firm raises its price, then
A)it should expect to lose all of its customers because there are many other sellers of the product.
B)this is a trick question because the firm does not have the ability to change its price.
C)it should expect to lose some, but not all, of its customers.
D)it will be able to increase its profits.
E)it can sell all it wants because it faces a horizontal demand curve.

Question

Quizplus · Accepted Answer

In a monopolistically competitive market, firms have some degree of market power due to product differentiation. If a firm raises its price, it will likely lose some customers who will switch to close substitutes offered by competitors, but it won't lose all its customers because some may prefer the firm's unique product characteristics.

If a Monopolistic Competitive Firm Raises Its Price, Then