What characteristics define monopolistic competition?

Many firms, free entry and exit, differentiated products, and some degree of market power with a downward‑sloping demand for each firm.

A single firm with a unique product, high barriers to entry, and strong price-setting power.

Many firms, homogeneous products, price-taking behavior, and no advertising or product variation.

A few large firms, interdependent pricing decisions, potential for collusion, and significant barriers to entry.