If a monopolistically competitive firm raises its price, it
A)loses all of its customers (sales drop to zero)
B)loses some, but not all, of its customers
C)loses very few customers
D)loses no customers at all
E)gains customers (sales increase)

Question

Quizplus · Accepted Answer

In monopolistic competition, there are close substitutes for the product, so if a firm raises its price, some customers will switch to the competition. However, because the product is differentiated, some customers may still be willing to pay the higher price for the unique features or perceived quality of the product. Therefore, the firm will lose some, but not all, of its customers.

If a Monopolistically Competitive Firm Raises Its Price, It