Economists have long debated whether there is a significant loss of well-being to society in markets that are monopolistically competitive rather than perfectly competitive. Which of the following offers the best reason why some economists believe that
monopolistically competitive markets benefit consumers despite any loss of well-being?
A) Although consumers may pay a price greater than marginal cost for a product, the product is produced at the minimum average total cost.
B) Although consumers may pay a price greater than marginal cost and the product is not produced at minimum average total cost, they benefit from being able to buy a differentiated product more closely suited to their tastes.
C) Consumers pay a price equal to the marginal cost of producing a product, even though it is not produced at the minimum average total cost.
D) Consumers are better off choosing from a variety of differentiated products, even though product differentiation causes barriers that restrict entry into monopolistically competitive markets.
Answer: B
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