Which of the following is always associated with monopolistic competition?
A) Identical products
B) Economic profits in the short run
C) MR lies above the demand curve
D) Demand curves become more inelastic as new entry occurs
E) Product differentiation

Question

Quizplus · Accepted Answer

Monopolistic competition is characterized by product differentiation, where firms produce similar but not identical products. This differentiation creates a degree of market power, allowing firms to set prices above marginal cost in the short run. However, this market power erodes over time due to the entry of new firms, and economic profits are competed away in the long run. The demand curve for each firm is downward-sloping and relatively elastic, with marginal revenue lying below the demand curve.

Which of the Following Is Always Associated with Monopolistic Competition