Which of the following is an example of monopolistic competition?

• A. The wheat market with many identical producers
• B. The diamond industry controlled by a single firm
• C. A local water utility company
• D. The market for fast food restaurants

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the characteristics of monopolistic competition. This market structure features many sellers offering differentiated products, free entry and exit in the long run, and some degree of market power due to product differentiation.
2. Step 2: Analyze the wheat market with many identical producers. Since the products are identical and many producers exist, this is an example of perfect competition, not monopolistic competition.
3. Step 3: Consider the diamond industry controlled by a single firm. A single firm controlling the market indicates a monopoly, not monopolistic competition.
4. Step 4: Evaluate a local water utility company. This is typically a natural monopoly due to high infrastructure costs and lack of competition, so it does not fit monopolistic competition.
5. Step 5: Look at the market for fast food restaurants. Many sellers offer similar but differentiated products (e.g., different menus, branding), which fits the definition of monopolistic competition.