The monopolistic competition market structure helps explain:
A) why a monopoly market structure is superior to other market structures.
B) why firms do not advertise.
C) why firms try to win customers through advertising.
D) why firms cannot raise prices without losing all of their customers.

Question

Quizplus · Accepted Answer

The concept of monopolistic competition suggests that firms differentiate their products through advertising and other marketing techniques in order to win customers and increase their market share. Thus, firms in this market structure try to win customers through advertising. This answer is supported by the definition of monopolistic competition, as well as the characteristics of firms operating in this market structure. Option A is incorrect as monopolistic competition is a competitive market structure, and a monopoly would contradict that. Option B is incorrect as advertising is an important strategy for firms in monopolistic competition. Option D is incorrect as firms in monopolistic competition have some degree of market power, which allows them to raise prices without losing all their customers.

The Monopolistic Competition Market Structure Helps Explain