Multiple Choice
In the long run, economic theory predicts that a monopolistically competitive firm will:
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13. Monopolistic Competition
Characteristics of Monopolistic Competition
Multiple Choice
Monopolistic competition is an industry characterized by which of the following?
A
A single firm dominating the market
B
Perfect information and no barriers to entry
C
Few firms selling identical products
D
Many firms selling differentiated products
Verified step by step guidance1
Understand the characteristics of monopolistic competition: it involves many firms competing in the market, but each firm sells a product that is differentiated from the others.
Recall that in monopolistic competition, firms have some market power because their products are not perfect substitutes, unlike in perfect competition where products are identical.
Recognize that monopolistic competition differs from monopoly (one firm dominating) and oligopoly (few firms selling identical or differentiated products).
Note that monopolistic competition typically features low barriers to entry, allowing many firms to enter and exit the market freely.
Summarize that the defining feature of monopolistic competition is 'many firms selling differentiated products,' which distinguishes it from other market structures.
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