The figure given below shows the revenue and cost curves of a monopolistically competitive firm.Figure 12.4
MR: Marginal revenue curve
ATC: Average total cost curve
MC: Marginal cost curve
-If firms are successful in product differentiation:
A)their demand will become relatively elastic.
B)consumers will believe that the firms are producing more or less identical goods.
C)they can raise their prices without losing all of their customers to rivals.
D)they tend to face a horizontal demand curve.
E)they gradually emerge as price takers.

Question

The figure given below shows the revenue and cost curves of a monopolistically competitive firm.Figure 12.4
  MR: Marginal revenue curve
ATC: Average total cost curve
MC: Marginal cost curve
-If firms are successful in product differentiation:
A)their demand will become relatively elastic. 
B)consumers will believe that the firms are producing more or less identical goods. 
C)they can raise their prices without losing all of their customers to rivals. 
D)they tend to face a horizontal demand curve. 
E)they gradually emerge as price takers.

Quizplus · Accepted Answer

If firms are successful in product differentiation, they can raise their prices without losing all of their customers to rivals. This is because consumers will perceive their product as unique and not easily substituted by other products offered by their competitors. Therefore, they will have some market power and their demand will be relatively inelastic. However, this does not mean that they will face a horizontal demand curve or become price takers.

The Figure Given Below Shows the Revenue and Cost Curves