If a business operating in monopolistic competition wishes to increase its sales volume, it will have to ______.Multiple choice question.lower its price.reduce its costs.
Question
If a business operating in monopolistic competition wishes to increase its sales volume, it will have to ______.Multiple choice question.lower its price.reduce its costs.
Solution
The correct answer is "lower its price." In a monopolistic competition, businesses have some degree of market power which allows them to behave independently of all competitors, and customers. Therefore, they have the power to influence the market price of their product. If such a business wants to increase its sales volume, it can do so by lowering its price, making its product more attractive to consumers. Reducing costs can increase the business's profit margin, but it doesn't necessarily lead to an increase in sales volume.
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