The descriptor "monopolistic" in the term "monopolistic competition" best describes
A) high barriers to entry.
B) product differentiation resulting in a downward-sloping demand curve for the firm's product.
C) production of a unique product.
D) a single producer.
E) a few small firms.

Question

Quizplus · Accepted Answer

The term "monopolistic" in monopolistic competition refers to the fact that firms have some degree of market power through product differentiation, allowing them to charge prices higher than in perfect competition. This results in a downward-sloping demand curve for the firm's product. However, there are still many firms in the market, which distinguishes it from a monopoly. High barriers to entry (A) would imply a lack of competition, so this is not the best choice. Production of a unique product (C) could also describe a monopolist, and the term "unique" implies that there are no close substitutes, which is not a necessary condition for monopolistic competition. A single producer (D) would describe a monopoly, and a few small firms (E) would describe an oligopoly.

The Descriptor "Monopolistic" in the Term "Monopolistic Competition" Best Describes