Question

State three characteristics of monopolistic competition. Which of the characteristic separates it from perfect competition and why?

Answer 1

In monopolistic competition,

1. the number of firms is large

2. there is free entry and exit of firms

3. goods produced by them are not homogeneous

In perfect competition, the output produced by each firm in the industry is indistinguishable from the others and the output of any other industry cannot substitute this output. However, in monopolistic competition, produce homogeneous products. These products will be slightly different from one another and hence have a unique selling point.