If the number of firms in a monopolistically competitive industry increases and the degree of product differentiation diminishes,
A) the likelihood of realizing economic profits in the long run would be enhanced.
B) individual firms would now be operating at outputs where their average total costs would be higher.
C) the industry would more closely approximate pure competition.
D) the likelihood of collusive pricing would increase.

Question

Quizplus · Accepted Answer

As the number of firms increases and product differentiation diminishes, the market becomes more competitive, resembling pure competition where firms have less market power and products are more similar.

If the Number of Firms in a Monopolistically Competitive Industry