If a government were to regulate a monopolistically competitive market by setting a single price, which of the following would result from that action?

Question

Quizplus · Accepted Answer

Setting a single price in a monopolistically competitive market would likely lead to less product variety as firms would have less incentive to differentiate their products. It could also lead to lower prices if the set price is below the equilibrium prices that would naturally occur in an unregulated market. Additionally, more output might be supplied to the market if the set price is above the cost of production for more firms, encouraging increased production. Thus, all of these outcomes are possible under such regulation.

If a Government Were to Regulate a Monopolistically Competitive Market