Final answer:
The true statements about monopolistic competition are that firms set their price above marginal cost and advertising decreases search and information costs, which correspond to options A and C respectively.
Step-by-step explanation:
In the context of monopolistic competition, the correct statement is that monopolistically competitive firms set their price above marginal cost, which is suggested by letter 'A'. This pricing strategy is due to the fact that these firms are price makers with a downward-sloping demand curve and maximize profits where marginal revenue (MR) is equal to marginal cost (MC). However, the price charged (P) is above this marginal cost, leading to the conclusion that monopolistic competition results in a higher price than perfect competition.
An additional aspect of monopolistic competition relates to the presence of excess capacity. As per statement 'B', monopolistically competitive firms do not produce at the output level where average total cost (ATC) is minimized due to the downward-sloping demand. Therefore, they operate with excess capacity by not producing where ATC is lowest.
Advertising in monopolistically competitive markets, as per statement 'C', indeed reduces search and information costs for consumers by providing them with information about the product, potentially leading to a more informed decision-making process that could outweigh the costs of advertising.
Considering all pieces of information provided, the true statement about monopolistic competition is E. A and C only.