Which of the following is true of a typical firm in a monopolistically competitive industry?
A) All firms have identical cost structures.
B) Product differentiation allows a successful firm to emerge as a market leader in the industry.
C) Each firm acts independently.
D) The more successful firms have an incentive to merge in order to exert greater market power.
Question 2
If the price of muffins, a normal good you enjoy, rises, then
A) both the income and substitution effects lead you to buy fewer muffins.
B) the substitution effect which causes you to decrease your muffin consumption outweighs the income effect which causes you to increase your muffin consumption, resulting in fewer muffins purchased.
C) the income effect which causes you to decrease your muffin consumption outweighs the substitution effect which causes you to increase your muffin consumption, resulting in fewer muffins purchased.
D) the income and substitution effects offset each other but the price effect leads you to buy fewer muffins.
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