Which of the following is true of monopolistically competitive markets?
A)The economic profits of firms in a monopolistically competitive market are positive in the long run.
B)The cost of government regulation is small relative to the social losses from monopolistic competition.
C)Since the price and output combination in a monopolistically competitive market is efficient,there is no need for government regulation.
D)It is possible that the value created through product differentiation outweighs the efficiency loss from monopolistic competition.

Question

Quizplus · Accepted Answer

In monopolistically competitive markets, firms have some control over the price they charge due to product differentiation. While this may lead to inefficiencies, it is also possible that the value created through product differentiation (e.g. unique features, branding) outweighs these inefficiencies. Therefore, it may not be necessary for government regulation to intervene in these markets unless the social losses from monopolistic competition outweigh the value created through product differentiation. Hence, option D is the correct choice.

Which of the Following Is True of Monopolistically Competitive Markets