In monopolistic competition,the presence of a large number of firms making a differentiated product means that
A) each firm can set the price of its particular product.
B) each firm must charge the same price.
C) the price is established by collusive behavior.
D) each firm must produce the same quantity.
E) firms cannot compete with each other on the basis of price.

Question

Quizplus · Accepted Answer

In monopolistic competition, firms can set their own prices because they are producing differentiated products, which are not identical to those produced by their competitors. Each firm has some degree of market power because consumers may be willing to pay more for their particular product. This creates a situation where firms can engage in non-price competition, such as advertising, to differentiate their products and attract customers.

In Monopolistic Competition,the Presence of a Large Number of Firms