Multiple Choice
Which of the following is true of a monopolistically competitive firm in long-run equilibrium?
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13. Monopolistic Competition
Characteristics of Monopolistic Competition
Multiple Choice
Which of the following are typical characteristics of monopolistic competition?
A
Few firms, homogeneous products, and significant barriers to entry
B
Single seller, unique product, and high barriers to entry
C
Many firms, homogeneous products, and no barriers to entry
D
Many firms, differentiated products, and free entry and exit
Verified step by step guidance1
Understand the market structure characteristics by recalling definitions: Monopolistic competition is a market structure with many firms, differentiated products, and free entry and exit.
Analyze each option by comparing it to the defining features of monopolistic competition:
- 'Few firms, homogeneous products, and significant barriers to entry' describes an oligopoly or possibly a monopoly, not monopolistic competition.
- 'Single seller, unique product, and high barriers to entry' clearly describes a monopoly.
- 'Many firms, homogeneous products, and no barriers to entry' describes perfect competition.
Identify that the correct characteristics for monopolistic competition are 'Many firms, differentiated products, and free entry and exit' because firms sell similar but not identical products and can freely enter or exit the market.
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