Monopolistic competition has which drawback compared to a monopoly?A.Governments are more likely to regulate them.B.Companies have less capital for expensive investments.C.Prices are more likely to be fixed at high levels.D.Consumers have fewer options for buying new products
Question
Monopolistic competition has which drawback compared to a monopoly?A.Governments are more likely to regulate them.B.Companies have less capital for expensive investments.C.Prices are more likely to be fixed at high levels.D.Consumers have fewer options for buying new products
Solution
The main drawback of monopolistic competition compared to a monopoly is option B: Companies have less capital for expensive investments.
Here's why:
In a monopolistic competition, there are many firms selling differentiated products. This means that each firm has less market share and therefore, less capital compared to a monopoly where one firm dominates the entire market.
With less capital, these firms in monopolistic competition have less ability to make expensive investments. This could limit their ability to innovate, expand, or improve their products and services.
On the other hand, monopolies, with their large capital reserves, can afford to make significant investments to improve their products, services, or infrastructure.
So, the main drawback of monopolistic competition compared to a monopoly is that companies have less capital for expensive investments.
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