A firm in monopolistic competition that introduces a new and differentiated product will temporarily have a ________ demand for its product and is able to charge ________.
A) less elastic; a lower price than before
B) less elastic; a higher price than before
C) more elastic; a lower price than before
D) more elastic; a higher price than before
E) less elastic; the same price as before

Question

Quizplus · Accepted Answer

When a firm introduces a new and differentiated product in monopolistic competition, it creates a temporary monopoly in the market. This means that there are no close substitutes for their product, and hence the demand for the product is less elastic. The firm is able to charge a higher price than before due to the lack of competition. Therefore, option B is correct.

A Firm in Monopolistic Competition That Introduces a New and Differentiated