Which of the following industries is the best real-world example of monopolistic competition?

• A. Fast food restaurants
• B. Airline industry
• C. Electric utility companies
• D. Wheat farming

Answer: (A)

Verified step by step guidance

1. Understand the characteristics of monopolistic competition: many sellers, differentiated products, free entry and exit in the long run, and some degree of market power for each firm.
2. Analyze each industry option based on these characteristics:
3. Fast food restaurants: many firms, differentiated products (different menus, branding), relatively easy entry and exit.
4. Airline industry: fewer firms, high barriers to entry, more like an oligopoly.
5. Electric utility companies: usually a single firm or very few firms with high barriers, often a natural monopoly.
6. Wheat farming: many sellers but homogeneous product, more like perfect competition.
7. Conclude that the industry best fitting monopolistic competition is fast food restaurants because it meets the key criteria of many sellers and product differentiation.