In a monopolistically competitive industry, which of the following statements is TRUE?
I. Firms produce identical products.
II. There are significant barriers to entry.
III. Firms consider the production decisions of their rivals when setting output levels.
IV. Firms act like monopolies by producing where marginal revenue equals marginal cost.

Question

Quizplus · Accepted Answer

In a monopolistically competitive market, firms have some degree of market power, similar to monopolies, which allows them to set prices above marginal cost. A key characteristic of such markets is that firms produce differentiated products, not identical ones, and there are low barriers to entry. While firms may be aware of their rivals, they primarily focus on their own demand and cost structures when making production decisions, setting output where marginal revenue equals marginal cost.

In a Monopolistically Competitive Industry, Which of the Following Statements