If a firm in monopolistic competition lowers its price, what will happen to the quantity of products it sells?
A) The quantity of products sold will increase and sales revenue will fall.
B) The quantity of products sold will decrease because this is not perfect competition.
C) The quantity of products sold will increase slightly-and in some cases not at all.
D) The quantity of products sold and sales revenues will increase as the firm lures customers from its competitors and attracts new customers.

Question

Quizplus · Accepted Answer

In monopolistic competition, firms have some degree of market power due to product differentiation. When a firm lowers its price, it can attract customers from its competitors and potentially attract new customers who previously did not purchase the product. This can lead to an increase in the quantity of products sold and also an increase in sales revenue, assuming the price reduction stimulates enough additional demand to offset the lower price.

If a Firm in Monopolistic Competition Lowers Its Price, What