Product differentiation in monopolistically competitive markets implies that:
A) firms make economic profits in the long run.
B) firms will produce at the minimum of the average total cost curve in the long run.
C) individual firms face downward-sloping demand curves.
D) firms are certain to earn economic profits in the short run.

Question

Quizplus · Accepted Answer

Product differentiation means that each firm produces a slightly different product that is unique in some way, giving them some discretion over the price they can charge. This also means that the firm faces a downward-sloping demand curve, as consumers are not able to easily substitute the product for those of other firms. However, there is no guarantee of economic profits in the long or short run, as it depends on the competitiveness of the market and the ability of firms to differentiate their products effectively.

Product Differentiation in Monopolistically Competitive Markets Implies That