Which one of the following statements describes a market that is monopolistically competitive?
A)The presence of significant barriers to entry.
B)The products produced by the firms are identical.
C)Many firms compete by making similar but slightly different products.
D)There is a small number of large firms.
E)The product produced by one firm has no close substitutes.

Question

Quizplus · Accepted Answer

A monopolistically competitive market has many firms producing similar but slightly differentiated products, allowing for competition but also some degree of market power through product differentiation. Significant barriers to entry are more characteristic of a monopoly or oligopoly, while identical products define a perfectly competitive market. A small number of large firms would be indicative of an oligopoly, and the lack of close substitutes would be more characteristic of a monopoly.

Which One of the Following Statements Describes a Market That