Steve is about to start up a business in a monopolistically competitive market.Which of the following can he expect?
A)He can expect market entry to be difficult as there exist entry barriers.
B)He can expect to enjoy a huge market power.
C)He can expect to face a highly inelastic demand curve.
D)He can expect to find close substitutes of the product he is planning to produce.
E)He can expect to face an infinitely elastic demand curve.

Question

Quizplus · Accepted Answer

In a monopolistically competitive market, producers offer differentiated products, meaning there are close substitutes available in the market. Therefore, Steve can expect to find close substitutes of the product he is planning to produce. Options A, B and C do not apply to monopolistically competitive markets, as there are no significant barriers to entry, no huge market power, and demand is not highly inelastic. Option E is incorrect as the demand curve is downward-sloping, but not necessarily infinitely elastic.

Steve Is About to Start Up a Business in a Monopolistically