In monopolistic competition, _______ set the prices in the market.

• A. the government
• B. buyers collectively
• C. a single dominant firm
• D. individual firms

Answer: (D)

Verified step by step guidance

1. Understand the market structure of monopolistic competition, where many firms sell differentiated products and have some control over their prices.
2. Recall that in monopolistic competition, no single firm dominates the market, unlike in monopoly or oligopoly.
3. Recognize that because products are differentiated, each firm faces a downward-sloping demand curve for its own product, giving it some price-setting power.
4. Note that the government does not set prices in monopolistic competition, nor do buyers collectively set prices; instead, each firm independently chooses its price based on its costs and demand.
5. Conclude that individual firms set the prices in the market in monopolistic competition, reflecting their ability to influence price due to product differentiation.