Which of the following is a good example of a monopolistically competitive market?

• A. The market for restaurants in a large city
• B. The market for wheat
• C. The market for electricity distribution
• D. The market for smartphones with only two major producers

Answer: (A)

Verified step by step guidance

1. Understand the characteristics of a monopolistically competitive market: many sellers, differentiated products, free entry and exit, and some degree of market power for each firm.
2. Analyze each option by checking if it fits these characteristics: for example, the market for wheat is typically a perfect competition example (many sellers, homogeneous product).
3. Consider the market for electricity distribution, which is usually a natural monopoly due to high infrastructure costs and a single provider.
4. Look at the market for smartphones with only two major producers, which is closer to an oligopoly (few sellers, some product differentiation).
5. Evaluate the market for restaurants in a large city: many sellers, differentiated products (different cuisines, styles), and relatively free entry and exit, making it a good example of monopolistic competition.