For the monopolistically competitive firm,
A)competition is blocked by barriers to entry
B)limit pricing can forestall competition indefinitely
C)marginal revenue is less than the product's price
D)price discrimination is a key tool
E)marginal revenue is equal to the product's price

Question

Quizplus · Accepted Answer

In a monopolistically competitive market, there are many firms selling differentiated products. While there are low barriers to entry, the products are not perfect substitutes, so firms have some degree of market power. As a result, to sell an additional unit, the firm must lower the price on all units sold, meaning that marginal revenue is always less than the product's price. Price discrimination can be a tool, but it is not key. Limit pricing is not effective, as there are no significant barriers to entry.

For the Monopolistically Competitive Firm