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
-Product differentiation:
A)is carried out by both perfectly competitive and monopolistically competitive firms.
B)is succesful if a firm faces a relatively inelastic demand curve.
C)does not allow the firm to raise its price without losing all of its customers.
D)cannot be accomplished through advertising or trivial product changes.
E)if carried out successfully enables the firms to enjoy market power.

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
-Product differentiation:
A)is carried out by both perfectly competitive and monopolistically competitive firms. 
B)is succesful if a firm faces a relatively inelastic demand curve. 
C)does not allow the firm to raise its price without losing all of its customers. 
D)cannot be accomplished through advertising or trivial product changes. 
E)if carried out successfully enables the firms to enjoy market power.

Quizplus · Accepted Answer

Product differentiation, if carried out successfully, enablers the firm to enjoy market power by allowing them to charge a higher price than their competitors. This is because their product is perceived as unique by consumers, giving them some degree of pricing power. This is evidenced by the monopolistically competitive firm's ability to charge a higher price than their marginal cost, as shown in the diagram.

The Figure Given Below Shows the Revenue and Cost Curves