Question

Firms gain control over price in monopolistic competition by A) blocking entry of other firms into the industry. B) producing a product for which there are no close substitutes. C) differentiating their products. D) colluding with other firms to set prices.

Answer 1

Answer: Firms gain control over price in monopolistic competition by "C) differentiating their products.".

Explanation: Monopolistic competition is an imperfect type of competition in which there is a high number of sellers in the market. The products offered are characterized by having some differentiation and it is precisely this differentiation that makes these companies enjoy a certain power of market, have a certain voice when setting their prices and are not merely "price-acceptors", as in the case of perfect competition.