What is the trade-off that consumers face when buying the product of a monopolistically competitive firm?
A)Consumers pay higher prices but receive better quality goods compared to the output of perfectly competitive firms.
B)Consumers pay a price greater than marginal cost, but have the luxury of choices more suited to their tastes.
C)Consumers pay higher prices but the products are produced by highly efficient firms.
D)Consumers pay lower prices but have fewer choices.

Question

Quizplus · Accepted Answer

Monopolistically competitive firms have some market power to set prices above their marginal cost, but they differentiate their products to appeal to specific consumer preferences. As a result, consumers have more choices that better match their individual preferences, but they pay higher prices. Therefore, the trade-off that consumers face is paying a price greater than marginal cost, but having the luxury of choices more suited to their tastes.

What Is the Trade-Off That Consumers Face When Buying the Product