Which of the following is a characteristic of monopolistic competition?

• A. There are significant barriers to entry
• B. There is only one seller in the market
• C. Firms sell differentiated products
• D. Firms are price takers

Answer: (C)

Verified step by step guidance

1. Understand the market structure characteristics: Monopolistic competition is a market structure where many firms sell products that are similar but not identical.
2. Recall that in monopolistic competition, firms have some degree of market power because their products are differentiated, meaning they are not perfect substitutes.
3. Recognize that unlike monopoly, there are no significant barriers to entry in monopolistic competition, allowing new firms to enter the market freely.
4. Note that firms in monopolistic competition are not price takers; they have some control over the price due to product differentiation.
5. Conclude that the key characteristic of monopolistic competition is that firms sell differentiated products, which distinguishes it from perfect competition and monopoly.