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

Question

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.