Which of the following best describes monopolistic competition?

• A. A market structure with many firms selling differentiated products and few barriers to entry.
• B. A market structure with a single firm that controls the entire market.
• C. A market structure with a few large firms dominating the market and significant barriers to entry.
• D. A market structure with many firms selling identical products and no barriers to entry.

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the key characteristics of different market structures in microeconomics, focusing on the number of firms, product differentiation, and barriers to entry.
2. Step 2: Recall that monopolistic competition is defined by having many firms in the market, each selling products that are similar but differentiated from each other (not identical).
3. Step 3: Recognize that in monopolistic competition, there are few or no significant barriers to entry, allowing new firms to enter the market relatively easily.
4. Step 4: Compare this with other market structures: a monopoly has a single firm with full market control; an oligopoly has a few large firms with significant barriers; perfect competition has many firms selling identical products with no barriers.
5. Step 5: Conclude that the best description of monopolistic competition is a market structure with many firms selling differentiated products and few barriers to entry.