The figure below shows the revenue and cost curves of a monopolistically competitive firm.Figure: 12.2
In the figure,
D: Demand curve
MR: Marginal revenue curve
ATC 1 and ATC 2 : Average total cost curves
MC: Marginal cost curve
-In contrast to perfect competition, in a monopolistically competitive industry:
A)new firms entering the market produce a good that is identical to the existing ones.
B)new firms entering the market produce a completely different product.
C)there are legal restrictions on the entry of new firms.
D)new firms entering the market produce a close substitute, not an identical or standardized product.
E)new firms are allowed to enter the industry but there are legal restrictions on their exit.

Question

The figure below shows the revenue and cost curves of a monopolistically competitive firm.Figure: 12.2
  In the figure,
D: Demand curve
MR: Marginal revenue curve
ATC 1 and ATC 2 : Average total cost curves
MC: Marginal cost curve
-In contrast to perfect competition, in a monopolistically competitive industry:
A)new firms entering the market produce a good that is identical to the existing ones. 
B)new firms entering the market produce a completely different product. 
C)there are legal restrictions on the entry of new firms. 
D)new firms entering the market produce a close substitute, not an identical or standardized product. 
E)new firms are allowed to enter the industry but there are legal restrictions on their exit.

Quizplus · Accepted Answer

In a monopolistically competitive industry, new firms entering the market produce a differentiated or close substitute product, not an identical or standardized one. This is why the demand curve for each firm is downward sloping, as consumers are willing to pay a higher price for the unique features or characteristics of a particular firm's product. This is in contrast to perfect competition, where firms all produce identical goods and the demand curve for each firm is perfectly elastic.

The Figure Below Shows the Revenue and Cost Curves of a Monopolistically