If the number of firms in a monopolistically competitive industry increases and the degree of product differentiation diminishes,
A)the likelihood of realizing economic profits in the long run would be enhanced.
B)individual firms would now be operating at outputs where their average total costs would be higher.
C)the industry would more closely approximate pure competition.
D)the likelihood of collusive pricing would increase.

Question

Quizplus · Accepted Answer

With more firms and less product differentiation, the industry becomes more competitive, resembling pure competition more closely. This increases competition and reduces the ability of individual firms to set prices above competitive levels.

If the Number of Firms in a Monopolistically Competitive Industry