Product differentiation under monopolistic competition means that each firm:
A) charges slightly different prices.
B) has a pure monopoly.
C) maximizes profit where MC = P.
D) faces a horizontal demand curve.

Question

Quizplus · Accepted Answer

Product differentiation is the key characteristic of monopolistic competition, which means that each firm produces a slightly differentiated product that appeals to a specific group of consumers. As a result, firms can charge different prices for their products based on the perceived differences in quality or features. Therefore, choice A is the correct answer. Choice B is incorrect because monopolistic competition is characterized by many firms in a market, and each firm has only a small market share. Choice C is incorrect because profit maximization occurs where MC=MR, not where MC=P. Choice D is incorrect because the demand curve facing a firm under monopolistic competition is downward-sloping, not horizontal.

Product Differentiation Under Monopolistic Competition Means That Each Firm