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CA Foundation · Business Economics · Price Determination in Different Markets

Which of the following is a key feature of monopolistic competition that distinguishes it from perfect competition?

Product differentiation is the feature that separates monopolistic competition from perfect competition. Because each seller offers a slightly different product, it has some control over its own price and faces a downward-sloping demand curve, whereas perfectly competitive firms sell identical goods and are price takers.

  1. ALarge number of sellers
  2. BFree entry and exit of firms in the long run
  3. CProduct differentiation among sellersCorrect
  4. DFirms are price takers

Explanation

Both perfect and monopolistic competition have many sellers and free entry and exit in the long run. The distinguishing feature is product differentiation, which gives each firm some control over price and a downward-sloping demand curve. Under perfect competition, firms are price takers selling homogeneous products.

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