Question

A major characteristic of monopolistic competition is that prices will be _____.


lower than in perfect competition


unrelated to the type of competition


higher than in a true monopoly


higher than in perfect competition

Answer 1

In monopolistic competition, prices will be **higher than in perfect competition**.

This is because firms in monopolistic competition have some degree of market power due to product differentiation, allowing them to set prices above marginal cost. In perfect competition, firms are price takers and must sell at market equilibrium prices, which tend to be lower.