The variety of products and features that consumers may choose from in monopolistically competitive industries

Question

Quizplus · Accepted Answer

Monopolistic competition is characterized by many firms offering differentiated products, which leads to some degree of market power for each firm and the ability to charge prices above marginal cost. This differentiation and the variety of products available can provide value to consumers, partially offsetting the economic inefficiencies (like not producing at the minimum of the average total cost curve) associated with monopolistic competition. This market structure does not lead to an optimal allocation of resources (B), guarantee full-capacity production (C), or make demand curves perfectly elastic (D), as firms face downward-sloping demand curves due to product differentiation.

The Variety of Products and Features That Consumers May Choose