Product differentiation in monopolistically competitive markets ensures that ____ in equilibrium.
A) marginal cost will exceed average revenue
B) price will exceed marginal cost
C) average variable cost will be declining
D) marginal revenue will equal average total cost

Question

Quizplus · Accepted Answer

Product differentiation allows firms to have some pricing power and differentiate their products from competitors, which can lead to price being higher than marginal cost in order to capture consumer surplus. However, marginal cost may still be higher than average revenue due to the competition in the market. Average variable cost and marginal revenue are not directly related to product differentiation in monopolistically competitive markets.

Product Differentiation in Monopolistically Competitive Markets Ensures That ____ in Equilibrium