In equilibrium, product differentiation in monopolistically competitive markets ensures that:

Question

Quizplus · Accepted Answer

In monopolistically competitive markets, firms have some degree of market power due to product differentiation. This means that they can charge a price above their marginal cost in order to maximize profits. If price were equal to marginal cost, the firm would not be earning any profits. Therefore, in equilibrium, price will exceed marginal cost in monopolistically competitive markets.

In Equilibrium, Product Differentiation in Monopolistically Competitive Markets Ensures That