Question

Monopolistic competition occurs when which of the assumptions about a perfectly competitive market is broken?

• A. Free entry and exit
• B. There should exist a very large number of firms so that the actions of a single buyer or seller have a negligible effect
• C. all goods are identical and perfect substitutes for each other
• D. The consumers and firms have perfect knowledge of the output, inputs and their prices

Answer 1

The correct option is C

all goods are identical and perfect substitutes for each other

Monopolistic competition arises when goods are slightly differentiated.