What is monopolistic competition?
A) A market where all firms sell identical goods
B) A market dominated by a few large firms
C) A market with a single seller controlling all production
D) A market structure where many firms sell similar but slightly differentiated products
Answer (2)
Monopolistic competition is a market structure where many firms sell similar but slightly differentiated products, allowing them some control over pricing. This structure encourages variety and competition among businesses. The correct answer to the multiple-choice question is D.
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Monopolistic competition is a type of market structure characterized by four main features:
Many Firms : In monopolistic competition, there are many firms competing against each other, but unlike in perfect competition, they do not sell identical products.
Product Differentiation : Each firm offers a product that differs slightly from the products offered by competing firms. This differentiation can be based on several factors such as quality, brand, features, or customer service.
Free Market Entry and Exit : Firms in this market structure are free to enter or exit the market. This means that firms can start selling their differentiated products without facing significant barriers.
Some Degree of Market Power : Because of product differentiation, each firm has some control over its pricing. This means that the firm can raise or lower its price without losing all of its customers.
An example of a monopolistic competition market could be restaurants or clothing brands. Each restaurant offers a different menu or dining experience, and clothing brands offer unique styles or clothing lines.
The answer to the given multiple-choice question is D) A market structure where many firms sell similar but slightly differentiated products. This option accurately describes monopolistic competition.
