A monopoly differs from monopolistic competition in that:

• A. it faces a perfectly elastic demand curve
• B. it is the sole seller of a product with no close substitutes
• C. it allows for free entry and exit in the market
• D. it sells differentiated products in a competitive market

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the characteristics of a monopoly. A monopoly is a market structure where there is only one seller who controls the entire supply of a product or service, and there are no close substitutes available to consumers.
2. Step 2: Understand the characteristics of monopolistic competition. In monopolistic competition, there are many sellers, each selling differentiated products, and there is free entry and exit in the market.
3. Step 3: Compare the demand curves faced by each market structure. A monopoly faces the market demand curve, which is typically downward sloping, meaning it has some control over the price. In contrast, monopolistic competition firms face a more elastic demand curve due to the presence of close substitutes.
4. Step 4: Analyze the options given: 'it faces a perfectly elastic demand curve' is incorrect for a monopoly because monopolies face downward sloping demand; 'it allows for free entry and exit' applies to monopolistic competition, not monopoly; 'it sells differentiated products in a competitive market' describes monopolistic competition, not monopoly.
5. Step 5: Conclude that the defining feature of a monopoly is that it is the sole seller of a product with no close substitutes, which differentiates it from monopolistic competition.