The use of the word "monopoly" in the name of the market structure called "monopolistic competition" refers to the fact that ?
Correct answer: B. a monopolistically competitive firms faces a downward-sloping demand curve for its differentiated product and so does a monopolist
- A. monopolistically competitive firms charge prices equal to their marginal costs just like monopolists
- B. a monopolistically competitive firms faces a downward-sloping demand curve for its differentiated product and so does a monopolist
- C. monopolistically competitive markets have free entry and exit just like a monopolistic market
- D. monopolistically competitive firms produce beyond their efficient scale and so do monopolists
Explanation
The monopoly element is that each firm has some market power over its differentiated product and therefore faces a downward-sloping demand curve. Free entry and exit, by contrast, are features of monopolistic competition rather than monopoly.
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Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
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