Which of the following most closely approximates the conditions of a monopolistically competitive market?
A) The market for Grade A eggs, which is characterized by a large number of firms producing a homogeneous product.
B) The restaurant industry, which is characterized by firms producing a differentiated product in a market with low entry barriers.
C) Local cable television service, where a licensed supplier competes with firms offering satellite service.
D) The market for jumbo aircraft, where one major domestic firm competes with one major foreign firm.

Question

Quizplus · Accepted Answer

The restaurant industry is a good example of monopolistic competition because there are many firms producing differentiated products (i.e. different types of cuisine) with relatively low barriers to entry (i.e. anyone can open a restaurant, but it requires some investment). The other options are not as good of examples: A is an example of perfect competition, C is an example of oligopoly, and D is an example of a duopoly.

Which of the Following Most Closely Approximates the Conditions of a Monopolistically