In monopolistic competition,each firm:

Question

Quizplus · Accepted Answer

Monopolistic competition is characterized by firms offering differentiated products, which gives them some degree of market power to set the price of their goods. Therefore, choice B is correct as each firm has some ability to set the price of its differentiated good. In contrast, choice A is incorrect because price-taking is a characteristic of perfect competition, not monopolistic competition. Choice C is also incorrect because firms in monopolistic competition will not set price equal to marginal cost, but will rather set price above marginal cost to maximize profits. Finally, choice D is inaccurate because a firm's marginal revenue will always be less than the price in monopolistic competition due to the downward-sloping demand curve for the differentiated product.

In Monopolistic Competition,each Firm