Monopolistic Competition
The administrtive burden of regulating price in monopolistically competive market:
A. small due to economies do scale
B. large because price is usually below marginal cost
C. large because of the large number of firms that produce differentiated products
D. small because firms produce with excess capacity
I picked D?
The correct answer is C. The administrative burden of regulating price in a monopolistically competitive market is large because of the large number of firms that produce differentiated products.
In a monopolistically competitive market, there are many firms that produce similar but slightly different products. Each firm has some degree of market power because they can differentiate their product through branding, marketing, or other means. As a result, firms have some control over the price of their products.
Regulating the price in a monopolistically competitive market is challenging due to the large number of firms involved. Each firm has its own pricing strategy and can adjust prices independently. This makes it difficult for a regulatory authority to monitor and control prices effectively.
Option D is not the correct answer. Excess capacity refers to the situation where firms are not producing at full capacity. It is not directly related to the administrative burden of regulating price in a monopolistically competitive market.
To arrive at the correct answer in the future, it is important to carefully analyze each option and consider how it relates to the characteristics of monopolistic competition.