Monopolistic competition is characterized by firms
A) producing differentiated products.
B) making economic profits in the long run.
C) producing at optimal productive efficiency.
D) producing where price equals marginal cost.

Question

Quizplus · Accepted Answer

Monopolistic competition is characterized by firms producing differentiated products, meaning that they offer goods or services that are slightly different from each other in terms of quality, design, or features. This allows firms to have some control over the price of their product and leads to a degree of market power, as consumers may prefer one firm's product over another. However, in the long run, economic profits are competed away as new firms enter the market and offer similar products, resulting in greater competition and lower prices. Monopolistic competition does not necessarily lead to optimal productive efficiency, nor does it require production at the point where price equals marginal cost.

Monopolistic Competition Is Characterized by Firms