Product differentiation under monopolistic competition means that each firm:
A) charges the same price.
B) maximizes profit where MC = P.
C) faces a downward-sloping demand curve.
D) receives economic profits.

Question

Quizplus · Accepted Answer

Product differentiation means that each firm offers a unique product or service, which results in a downward-sloping demand curve because consumers perceive differences in the products offered. Choices A, B, and D are incorrect because firms under monopolistic competition set prices higher than marginal cost, achieve only normal profits in the long run, and may have economic losses in the short run.

Product Differentiation Under Monopolistic Competition Means That Each Firm