Final answer:
In the monopolistically competitive t-shirt industry, a firm would choose a pricing strategy that acknowledges the existence of many close substitutes for its products. (option b) The firm decides on the profit-maximizing quantity and then sets the corresponding price, always being mindful of competitive pressures.
Step-by-step explanation:
When considering how a firm in the monopolistically competitive t-shirt industry would view its pricing decisions, the most accurate perspective is that the firm would choose a price with the understanding that there are many close substitutes for its product. This situation is referred to as monopolistic competition, where each firm has some market power due to product differentiation but also faces competition due to the availability of close substitutes. Hence, correct answer is option b - the firm would choose a price in recognition of the fact that there are many close substitutes for its product.
In a monopolistically competitive market, a firm, similar to a monopolist, faces a downward-sloping demand curve. However, due to the number of substitutes, the firm has less freedom to increase prices without losing sales to competitors. The firm first selects the profit-maximizing quantity to produce and then decides on the price to charge for that quantity. Unlike in a monopoly situation, where a company is surrounded by high barriers to entry and can set prices relatively freely, monopolistic competitors must consider the competitive atmosphere when making pricing decisions.