Final answer:
Companies often diversify into niche markets to encourage innovation and achieve a competitive edge. Monopolistic competition characterizes this market structure that lies between perfect competition and monopoly, featuring many firms offering differentiated products. So, the correct answer is option b.
Step-by-step explanation:
Companies tend to diversify in niche markets which provide room for innovation, and most competitors are not violated. The correct answer to the given question is: b) niche, innovation. Niche markets are specialized market segments that allow for unique product offerings and foster innovation. This diversification strategy helps companies to establish a competitive edge within a particular segment that is not yet saturated.
One type of imperfectly competitive market is called monopolistic competition. This market structure is common in the U.S. economy, where a large number of firms compete by offering differentiated products and services. In monopolistic competition, the firms have some power over their prices due to brand differentiation, but they face competition which prevents long-term economic profits. This environment spurs innovation as companies strive to stand out and capture market share while managing costs to remain competitive.
So, the correct answer is option b.