In the short run, a firm in a monopolistically competitive market operates much like a:

• A. perfectly competitive firm
• B. monopsony
• C. oligopoly
• D. monopoly

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the characteristics of a monopolistically competitive market, where many firms sell differentiated products and have some degree of market power.
2. Step 2: Recognize that in the short run, a firm in monopolistic competition faces a downward-sloping demand curve, similar to a monopoly, because it can set prices above marginal cost due to product differentiation.
3. Step 3: Recall that a perfectly competitive firm faces a perfectly elastic (horizontal) demand curve and is a price taker, which differs from the monopolistically competitive firm's situation.
4. Step 4: Note that a monopsony refers to a market with a single buyer, which is unrelated to the firm's pricing behavior in monopolistic competition.
5. Step 5: Conclude that in the short run, the firm's behavior resembles that of a monopoly because it maximizes profit where marginal revenue equals marginal cost, setting price above marginal cost.