Question

Which of the following is a characteristic of a monopolistically competitive market? I. Each firm is a price-taker. II. Firms sell slightly differentiated products. III. Each firm faces a downward-sloping demand curve. I only I and II only II and III only I, II, and III

Answer 1

Answer:

The correct answer is option II and III only.

Explanation:

Monopolistic competition is a market structure where there is a large number of buyers and sellers. The sellers in this market sell differentiated products which are close substitutes.  

There is a very low restriction on the entry of new firms in the market. Because of differentiated products each firm has some degree of market power. The firms face a downward-sloping demand curve. This means that the firms decide the price level.  

Though the firms enjoy zero economic profits in the long run.