The key difference(s)between perfect competition and monopolistic competition is:
A)that a monopolistically competitive firm is a price taker, whereas a perfectly competitive firm is a price maker.
B)that a monopolistically competitive firm is a price maker, the same as a perfectly competitive firm is a price maker.
C)that a monopolistically competitive firm can raise its price and still retain some customers.
D)that if a monopolistically competitive firm raises its price it will lose all customers..

Question

Quizplus · Accepted Answer

In perfect competition, all firms are price takers and have no market power to set their own prices. In contrast, in monopolistic competition, firms have a degree of market power and can differentiate their products from competitors. This allows them to raise their prices to some extent while still retaining some customers who value their unique product features or qualities. However, if a monopolistically competitive firm raises its price too high, it will eventually lose all its customers as they switch to cheaper, close substitutes offered by competitors. Therefore, option C is the correct answer as it correctly identifies the key difference between perfect competition and monopolistic competition.

The Key Difference(s)between Perfect Competition and Monopolistic Competition Is