The large number of firms in a monopolistically competitive market ensures that

Question

Quizplus · Accepted Answer

In a monopolistically competitive market, there are a large number of firms that produce similar, but not identical products. This means that if one firm increases its price or changes its production, it is unlikely to affect the decisions of other firms. Therefore, pricing and production actions by a single firm do not necessarily lead to retaliatory actions by rival firms, making choice D the best option. The other choices are incorrect because:

A) There is room for new competitive entrants, and new firms can enter the market if they can differentiate their products. 
B) In a monopolistically competitive market, firms charge different prices based on the perceived value of their product. 
C) Product differentiation is actually a defining characteristic of monopolistic competition, and it's unlikely to disappear. 
E) Collusion among producers is unlikely in a monopolistically competitive market because there are too many firms and each has limited market power.

The Large Number of Firms in a Monopolistically Competitive Market