In a market in which firms operate in monopolistic competition,

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In monopolistic competition, firms have some degree of market power but are not monopolies. Therefore, firms compete on price, quality and marketing to differentiate their products from their competitors. In the long run, firms may or may not produce at their efficient scale, depending on the extent of their market power. However, they are able to charge a markup over their marginal cost in the short run. Advertising may also be used as a tool for product differentiation in this market structure. Option A is incorrect as the Herfindahl-Hirschman Index (HHI) is used to measure concentration in a market, where a higher index indicates a more concentrated market. In monopolistic competition, there are many firms, so the HHI for a single firm is not relevant. Option C and D are incorrect as they are not true for all firms in monopolistic competition. Option E is incorrect as advertising is commonly used in this type of market structure.

In a Market in Which Firms Operate in Monopolistic Competition