What is the best explanation for the belief by economists that monopolistically
ID: 1161572 • Letter: W
Question
What is the best explanation for the belief by economists that monopolistically competitive markets benefit consumers regardless of any loss of well- being to society? Consumiers are better off choosing from a variety of differentiated products, even though product differentiation causes barrers that restrict entry into monopolistically competitive markets 0 A. O B. Consumers pay a price equal to the marginal cost of producing a product, even though it is not produced at the minimum average total cost 0 C Although consumers may pay a pnce greater than marginal cost for a product, the product is produced at the minimum average total cost O D Although consumers may pay a pnce greater than marginal cost and the product is not produced at minimum average total cost, they benefit from being able to buy a differentiated product more closely suited to the r tastes.Explanation / Answer
Answer : The correct option is D.
Because in monopolistic competition sellers has market power on price setting and hence to maximize the profit level sellers charges that price level which is higher than the marginal cost level and at this price level the average total cost for production is not minimum and in this market there exists free entry or free exit condition and in this market all sellers sell differentiated products. Because of differentiated products selling buyers can buy those products which are closely related to their tests and this is the benefit of consumers and also by selling products in this market sellers earns profit. Therefore, there is no loss in well-being society.
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