Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It allows firms to charge higher prices due to unique features, thereby increasing their market power.
B
It decreases consumer choice by limiting the variety of products available.
C
It has no impact on market power or consumer choice since all products are identical.
D
It results in lower prices for consumers due to increased competition among firms.
Understanding the Answer
Let's break down why this is correct
Answer
In a monopolistically competitive market, many firms sell similar but not identical products, which is known as product differentiation. This means that each company tries to make its product stand out through features, quality, branding, or customer service. For example, think of two coffee shops: one might focus on organic beans and cozy atmosphere, while the other emphasizes quick service and low prices. Because consumers have different tastes, they might choose one coffee shop over the other, giving each firm some control over its prices, which is what we call market power. Overall, product differentiation helps firms attract customers and influence their choice, leading to a variety of options in the market.
Detailed Explanation
When companies make their products different, they can charge more money. Other options are incorrect because This answer suggests that fewer choices are available; This option says all products are the same.
Key Concepts
product differentiation
market power
consumer choice
Topic
Monopolistic Competition Analysis
Difficulty
hard level question
Cognitive Level
understand
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