Question

As the number of firms in a monopolistically competitive industry increases, average cost ---- and prices ----. A rises; rise B rises; fall C falls; rise D falls; fall

Answer 1

B rises; fall

Step-by-step explanation:

In a monopolistic competition involves a group of firms in an industry that sell goods that are similar but not identical, there are large number of small firms, relative mobility of resources, and extensive knowledge.

As firms in a monoploistic competition increases, the number of similar goods increase. There is more need for advertising and other promotional activities in order to maintain competive edge. So average cost rises.

Price also falls because the number of firms selling similar products has increased, so a firm cannot keep increasing price because people will go for other similar products.