Which of the following statements is true?

Question

Quizplus · Accepted Answer

Monopolistic competition is a market structure where there are many firms that sell differentiated products. This differentiation allows each firm to have some market power and to charge a slightly higher price than in a perfectly competitive market. Therefore, the assumption of monopolistic competition is that firms can differentiate their products. Conversely, perfect competition assumes that all firms sell homogeneous (identical) products. Option B is incorrect because the assumption of perfect competition is that all firms sell identical products, which means that they cannot differentiate their products. Option C is incorrect because firms can freely enter and exit the monopolistic competition market, so the market is subject to free entry and exit. Option D is incorrect because monopolistic competition assumes many small firms in the industry, not a few large ones.

Which of the Following Statements Is True