Question

"Competition in quality and service may be just as effective as price competition in giving buyers more for their money." Do you agree? Why or Why not?

Explain why monopolistically competitive firms frequently prefer non-price competition to price competition.  

Answer 1

Quality and service competition can be just as effective as price competition in giving more money to buyers. This statement is true when all consumers value more than a lower price for quality and service

Monopolistically competitive firms often prefer price-free competition as price competition can result in lower economic profit or even loss.

It depends on how much quality and service consumers value and are willing to pay for it through higher product prices. A low price of a cheaper product that can last only half as long as a higher price, higher quality product is usually a long-term deal.

In a monopolistically competitive market, if the consumer prefers a lower price for good quality and service, the customer may purchase a substitute brand at a lower price. The monopoly-competitive company often prefers non-price competition to price competition, since the latter can lead to the company producing where P= ATC and thus make no economic profit or, worse, produce in the short term where P < ATC