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In San Francisco there are many restaurants that specialize in a wide variety of cuisines. Patronage at these restaurants is influenced by factors such as tastes, price, and location. This market is monopolistically competitive.
What is monopolistically competitive?
- An industry with a lot of companies offering similar (but not identical) replacement goods or services is known as one with monopolistic competition.
- In a monopolistically competitive industry, there are few barriers to entry and exit, and no firm's decisions directly affect those of its rivals. Brand differentiation is a commercial strategy that is directly tied to monopolistic competition.
- These businesses lack the authority to limit supply or raise prices in order to boost profits, unlike monopolies.
- In monopolistic competition, businesses often work to distinguish their goods in order to generate profits above the market.
- Some economists criticize the widespread use of heavy marketing and advertising by businesses engaged in monopolistic rivalry as being wasteful.
- Monopolistic competition suggests that there are enough businesses operating in the market for one firm's decision to not force the behavior of other businesses to alter. A price decrease by one company can start a price war in an oligopoly, but monopolistic competition prevents this from happening.
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