Which of the following is a characteristic of a firm in monopolistic competition?

Question

BlackTom AI · Accepted Answer

Firms in monopolistic competition produce and sell differentiated products, so each firm faces a downward‑sloping demand curve and has some degree of price‑setting power.

1) Relevant knowledge points and concepts
- Market structure characteristics: number of firms, product type (homogeneous vs. differentiated), ease of entry/exit, and degree of market power.
- Monopolistic competition is characterized by many sellers, free entry and exit in the long run, product differentiation (brands, quality, features), and some market power (but not the single-seller power of a monopoly).

2) Step‑by‑step reasoning
- Compare the four options to the defining features of monopolistic competition.
  Step A: Is the product homogeneous? No — homogeneous products are a feature of perfect competition, not monopolistic competition.
  Step B: Does monopolistic competition involve a small number of sellers? No — it involves many sellers, each small relative to the market (unlike an oligopoly).
  Step C: Does the market have a small number of buyers? No — the buyer side in typical market structures is large; a small number of buyers would describe a monopsony, not monopolistic competition.
  Step D: Do firms sell differentiated products? Yes — product differentiation (real or perceived differences across brands) is the key distinguishing trait of monopolistic competition.

3) Calculations
- No numerical calculations are required for this conceptual question.

4) Why the correct answer is correct
- Differentiated products create downward‑sloping demand for each firm’s product, allowing each firm to set price to some extent while still facing competition from many other close but not identical substitutes. This is the hallmark of monopolistic competition.

5) Why the other options are incorrect
- A: “A small number of buyers” describes a monopsony, not monopolistic competition.
- B: “A homogeneous product” describes perfect competition.
- C: “A small number of sellers” describes an oligopoly.

Conclusion: The correct answer is D: A differentiated product, which matches the provided answer.

Which of the following is a characteristic of a firm in monopolistic competition?单项选择题

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