A major difference between monopolistic competition and perfect competition is
A) the number of sellers in the markets.
B) the degree by which the market demand curves slope downwards.
C) that products are not standardised in monopolistic competition, unlike in perfect competition.
D) the barriers to entry in the two markets.

Question

Quizplus · Accepted Answer

In monopolistic competition, products are differentiated or not standardized, so there can be some variation in quality, features, or design, among other characteristics, which lead to differences in prices, branding, advertising, and customer loyalty. In contrast, in perfect competition, all firms offer homogeneous or identical products, so price is the main factor that consumers use to compare and choose among suppliers. The other options (A, B, D) may also be relevant, but they are not as fundamental or distinctive as the one in choice C. For instance, both types of markets have downward-sloping demand curves, but the degree of elasticity or responsiveness of consumers to price changes may vary depending on the substitutes available, the preferences and habits of buyers, or the level of competition. Likewise, both types of markets have some level of freedom of entry and exit, but perfect competition assumes zero barriers or costs, while monopolistic competition may involve some obstacles to new entrants, such as branding, patents, economies of scale, and network effects.

A Major Difference Between Monopolistic Competition and Perfect Competition Is