A monopolistically competitive firm differs from a perfectly competitive firm in that a monopolistically competitive firm:
A) faces a downward-sloping demand curve for its product.
B) faces a horizontal demand curve at the market-clearing price.
C) is able to earn profits in the long run.
D) faces virtually no barriers to entry.

Question

Quizplus · Accepted Answer

A monopolistically competitive firm faces a downward-sloping demand curve for its product, meaning it has some market power to influence the price. This is in contrast to a perfectly competitive firm, which faces a horizontal demand curve at the market-clearing price and has no market power. Both types of firms may face low barriers to entry, but monopolistically competitive firms are able to differentiate their product and may earn profits in the long run due to their perceived uniqueness.

A Monopolistically Competitive Firm Differs from a Perfectly Competitive Firm