Question

“Monopolistic competition is monopolistic up to the point at which consumers become willing to buy close-substitute products and competitive beyond that point.” This statement recognizes that products of monopolistically competitive firms

A) are usually preferred by consumers, giving them monopoly power; however, consumers will seek substitutes if the price is too high, making them competitive.B) may be preferred by consumers, giving them monopoly power; however, consumers will seek substitutes if the price is too high, making them competitive.C) may or may not be viewed as different from the product of a monopoly.D) have to be limited in supply for the firm to experience monopoly power.

Answer 1

The correct answer is option B.

Step-by-step explanation:

Monopolistic competition is that form of market where there are a number of sellers who are producing close substitutes. There is high degree of competition in the market and firms adopt advertising to promote their products.

In a monopolistic market the firms may enjoy monopoly powers, if the consumers prefer their product. But if the price is too high, the rational consumers will prefer close substitutes.