Monopolistic competition describes an industry characterized by:
A)a product with many close substitutes.
B)a horizontal demand curve.
C)a small number of firms.
D)barriers to entry and exit.

Question

Quizplus · Accepted Answer

Monopolistic competition is characterized by a large number of firms producing differentiated products, meaning that consumers perceive the products to be slightly different from each other. This leads to many close substitutes being available in the market. As a result, firms have some control over the prices they charge, but because of the availability of substitutes, the demand curve they face is downward-sloping and not perfectly elastic (horizontal). There are no significant barriers to entry and exit, and hence the industry is characterized by a large number of firms competing with each other.

Monopolistic Competition Describes an Industry Characterized By