Question

Who sets the price in a monopolistic competition

Answer 1

The answer would be producers. This is because under a monopolistic competition, the business has some ability to determine the price, for the reason that contrast of a firm will not lose all customers when it increases its price. Monopolistic competition is said to be the mix of perfect competition together with monopoly because it has the facets of both perfect competition and monopoly.

Answer 2

The producers are the price-setters in a monopolistic competition.

Further explanation:

The firms in a monopolistic competition set the price and thus are price setters. A monopolistic firm has a nominal price-setting power due to the high price elastic demand for its products. A monopolistic firm can raise the prices of its goods through differentiating its products from competitors with respect to quality.  

Justification for the correct and incorrect answer:

producers and consumers: This option is incorrect.

The consumers have no influence over the price setting in a monopolistic competition. Due to the high price elastic demand for products in a monopolistic competition, the producers have limited control over the price setting.  

consumers only: This option is incorrect.

Consumers do not have any power to set prices of products in any market form. Either the industry or the firms generally have the power to set the prices of goods. Thus, consumers are not the price setters in a monopolistic competition.  

government: This option is incorrect.

The government does not intervene in a monopolistic competition for price setting. The power to set the prices is left for the firms in the monopolistic competition and thus the government is not a price setter in this market scenario.

producers only: This option is correct.

The firms in a monopolistic competition set the price and have limited ability over the price setting. This is because in monopolistic competition demand for goods is generally highly price elastic.  

Thus, producers set the price in a market form of monopolistic competition.  

Learn more:

1. Learn more about the competitive market

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2. Learn more about market intermediary

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3. Learn more about the mixed market economy

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Answer details:

Grade: Senior School

Subject: Economics

Chapter: Market forms

Keywords: who, sets, the price, in, a monopolistic competition, producers and consumers, consumers, only, government, producers only, price-setting power, highly price elastic demand of products, a market form of monopolistic competition, power to set prices, market forms, limited ability.