CFA Level I · CFA Level I Exam · The Firm and Market Structures
A market has many sellers offering differentiated products, firms face downward-sloping demand curves, and entry and exit are relatively easy. This market structure is best described as:
The market is monopolistic competition. It has many sellers, differentiated products, downward-sloping firm demand and easy entry and exit. Perfect competition requires identical products, and oligopoly requires a few dominant sellers protected by high barriers to entry.
- Aperfect competition
- Bmonopolistic competitionCorrect
- Coligopoly
Explanation
Many sellers, product differentiation, a downward-sloping demand curve for each firm and low barriers to entry are the defining features of monopolistic competition. Perfect competition has identical products and perfectly elastic firm demand. Oligopoly has few sellers and high barriers to entry.
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