If regulators required firms in monopolistically competitive markets to set price equal to marginal cost,
A)firms would respond by lowering their costs.
B)firms would require a subsidy to stay in business
C)new firms that enter the market would operate at efficient scale.
D)the most efficient firms would not be affected.

Question

Quizplus · Accepted Answer

In monopolistic competition, firms typically set prices above marginal cost due to product differentiation and downward-sloping demand curves. If forced to set price equal to marginal cost, firms would not cover their average total costs in the long run, leading to losses. Therefore, they would require a subsidy to remain viable.

If Regulators Required Firms in Monopolistically Competitive Markets to Set