When trade occurs among nations with similar tastes, technology, products, and costs, monopolistically competitive firms will have an incentive to:
A) lower prices to get new customers and increase market share.
B) raise prices to take advantage of a lucrative situation.
C) cut corners in manufacturing to boost profits.
D) raise quality, so they can charge a higher price than the competition.

Question

Quizplus · Accepted Answer

When trade occurs among nations with similar tastes, technology, products, and costs, the market becomes more competitive. In a monopolistically competitive market, firms have an incentive to lower prices to attract more customers and increase their market share. This is because the demand for their product is elastic, meaning that customers are sensitive to changes in price. Therefore, lowering prices can lead to an increase in sales and revenue, making it the best choice.

When Trade Occurs Among Nations with Similar Tastes, Technology, Products