Monopolistically competitive markets are characterized by which of the following features?

• A. Perfectly homogeneous products
• B. A single firm dominating the market
• C. Barriers to entry are extremely high
• D. Many firms selling differentiated products

Answer: (D)

Verified step by step guidance

1. Understand the characteristics of monopolistically competitive markets: these markets have many firms, each selling products that are differentiated but close substitutes.
2. Recall that in monopolistic competition, products are not perfectly homogeneous; instead, firms differentiate their products through quality, branding, or other features.
3. Recognize that no single firm dominates the market because there are many competitors, each with some market power due to product differentiation.
4. Note that barriers to entry are low or moderate, allowing new firms to enter the market relatively easily, unlike in monopoly or oligopoly markets.
5. Conclude that the defining feature of monopolistic competition is many firms selling differentiated products, which distinguishes it from perfect competition and monopoly.