In both perfect competition and monopolistic competition, each firm:

• A. produces a homogeneous product
• B. faces a large number of competing firms in the market
• C. is a price maker with significant control over market price
• D. has barriers to entry that prevent new firms from entering

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the characteristics of perfect competition. In perfect competition, firms produce homogeneous (identical) products, face many competitors, are price takers (no control over price), and have no barriers to entry or exit.
2. Step 2: Understand the characteristics of monopolistic competition. In monopolistic competition, firms produce differentiated products (not homogeneous), face many competitors, have some control over price (price makers), and have low or no significant barriers to entry.
3. Step 3: Compare the two market structures to identify common features. Both have a large number of competing firms and relatively easy entry and exit, but differ in product homogeneity and price control.
4. Step 4: Analyze each answer choice against these characteristics: 'produces a homogeneous product' applies only to perfect competition; 'faces a large number of competing firms' applies to both; 'is a price maker' applies only to monopolistic competition; 'has barriers to entry' applies to neither.
5. Step 5: Conclude that the correct common feature for both perfect and monopolistic competition is that each firm faces a large number of competing firms in the market.