Which of the following supports the contention that monopolistic competitors have a strong incentive to engage in R&D?
A) Entry to monopolistic competitive industries is relatively easy, and thus profit from innovation is quickly competed away.
B) Most monopolistic competitive industries are decreasing-cost industries.
C) The desire to differentiate products from competitors may motivate monopolistic competitors to engage in R&D.
D) Monopolistic competitors have large retained earnings that are available to finance R&D.

Question

Quizplus · Accepted Answer

Monopolistic competitors have a strong desire to differentiate their products from their competitors in order to create a perceived difference in quality or style. This differentiation can be achieved through R&D, which may lead to the development of new and unique products or the improvement of existing ones. The other options are not specific to monopolistic competition, or do not directly link to the incentive to engage in R&D.

Which of the Following Supports the Contention That Monopolistic Competitors