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Question

As the degree of product differentiation increases among the products sold in a monopolistically competitive industry, which of the following occurs?

A The cost of production falls Correct Answer Incorrect Answer
B The amount of marketing expenditures decreases for each firm. Correct Answer Incorrect Answer
C The demand curve for each seller's product becomes more horizontal Correct Answer Incorrect Answer
D Each seller's demand becomes more inelastic Correct Answer Incorrect Answer
E All of the above Correct Answer Incorrect Answer

Solution

As the degree of product differentiation increases among the products sold in a monopolistically competitive industry, each seller's demand becomes more inelastic. This is because products now no longer have close substitutes so demand becomes more inelastic.

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