Product differentiation in monopolistically competitive markets ensures that, for profit-maximizing firms,
A)marginal revenue will equal average total cost.
B)price will exceed marginal cost.
C)marginal cost will exceed average total cost.
D)average total cost will be rising.

Question

Quizplus · Accepted Answer

In monopolistically competitive markets, firms differentiate their products to create a unique market niche, allowing them to have some control over their pricing. This leads to a situation where the price charged by firms is higher than the marginal cost of production, as firms are not price takers like in perfect competition. This price setting above marginal cost allows firms to earn profits in the short run.

Product Differentiation in Monopolistically Competitive Markets Ensures That, for Profit-Maximizing