When a monopolistically competitive firm raises its price,
A)quantity demanded falls to zero.
B)quantity demanded declines but not to zero.
C)the market supply curve shifts outward.
D)quantity demanded remains constant.

Question

Quizplus · Accepted Answer

In a monopolistically competitive market, firms have some degree of market power due to product differentiation. When a firm raises its price, consumers may reduce their quantity demanded because they have alternatives, but demand does not fall to zero because the product is differentiated and some consumers may still prefer it over others.

When a Monopolistically Competitive Firm Raises Its Price