Why do firms in monopolistically competitive industries have some degree of market power?
A) as a result of barriers to entry
B) as a result of economies of scale
C) as a result of specialization and division of labour
D) as a result of product differentiation

Question

Quizplus · Accepted Answer

Monopolistically competitive industries are characterized by product differentiation, which means that each firm produces a slightly different product that is not perfect substitutes for the products of other firms. As a result, each firm has some degree of market power or the ability to influence the price of its product. This is because the firm's product is somewhat unique and may have a loyal customer base who are willing to pay a premium for it. Therefore, the correct answer is D, as product differentiation gives firms in monopolistically competitive industries some degree of market power.

Why Do Firms in Monopolistically Competitive Industries Have Some Degree