ECONOMICS
COMPETITION AND MARKET STRUCTURES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The firms will merge.
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Consumers will substitute their product for a rival’s product.
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Consumers will continue to buy because it’s a monopoly.
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The government will close down the firm.
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Detailed explanation-1: -Sellers are able to enter and exit the market freely. Sellers offer a wide variety of products. What happens to a monopolistically competitive firm that begins to charge an excessive price for its product? The firm will go out of business.
Detailed explanation-2: -However, when a monopolistic competitor raises its price, consumers can choose to buy a similar product from another firm. If a monopolistic competitor raises its price, it will not lose as many customers as would a perfectly competitive firm, but it will lose more customers than a monopoly would.
Detailed explanation-3: -McDonald’s competes in a monopolistically competitive market structure. Because you just need a grill and hamburger meat, market entry is easy. But to have some price making power, you require something unique. You need your McSpicy chicken sandwich and a McRib.
Detailed explanation-4: -Answer: Monopolistic Competition Many firms have similar marketing strategies and recipes but McDonald’s is still unique.