Practice question · Multiple choice
Monopolistic competition has many firms like perfect competition, yet each sets its own price. What makes the difference?
Hints
- Ask what happens to a pizzeria that raises prices by 5%.
- Now ask the same of an olive grower selling identical oil.
Show the answer
B. Product differentiation, giving each a downward-sloping curve
Why
Differentiation buys a sliver of pricing power. The pizzeria loses some customers but not all; the commodity seller loses all of them, which is what "price taker" means.
Practise Market Structures
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