Question

Which of the following are characteristics of a monopolistically competitive industry? (Check all that apply.)

Multiple select question.
obstacles to entry
the ability to raise prices for differentiated products
very few competing firms
a differentiated product

Answer 1

A monopolistically competitive industry is characterized by many firms offering differentiated products, with the ability to raise prices due to product uniqueness and low barriers to entry, allowing for easy market access.

Step-by-step explanation:

The characteristics of a monopolistically competitive industry include the presence of many firms selling differentiated products. These products are unique in some way, whether it be through characteristics of the good or service, the location they are sold, intangible aspects, or perceptions. Unlike an oligopoly which has high barriers to entry, monopolistic competition is marked by low entry barriers, allowing new firms to enter the market more easily. In monopolistically competitive markets, firms have the ability to raise prices for their differentiated products due to the uniqueness of their offerings.

The significance of differentiated products lies in the fact that they allow firms to maintain some market power and set prices above marginal cost, which would not be possible in a perfectly competitive market. Monopolistic competitors choose price and quantity based on the demand and perceived value of their unique product. Advertising is an important tool in such markets as it helps firms to differentiate their products and attract customers. However, this market structure results in neither productive nor allocative efficiency, unlike what is seen in perfect competition.

Answer 2

Characteristics of monopolistically competitive industries include obstacles to entry, the ability to raise prices for differentiated products, and a differentiated product.

Step-by-step explanation:

In monopolistically competitive industries, the following characteristics apply:

• Obstacles to entry: These are present in the form of barriers that make it difficult for new firms to enter the market.
• The ability to raise prices for differentiated products: Each firm produces a unique product or offers a variation of existing products, allowing them some pricing power.
• A differentiated product: Firms in monopolistically competitive industries offer products that are differentiated from one another, whether through branding, quality, location, or other factors.

However, very few competing firms are not a characteristic of monopolistically competitive industries. In fact, there are typically many competing firms in these markets.

The complete question is:Which of the following are characteristics of a monopolistically competitive industry? (Check all that apply.)

Multiple select question.

obstacles to entry

the ability to raise prices for differentiated products

very few competing firms

a differentiated product