Final answer:
The monopolistic competition involves businesses that compete directly by selling differentiated products within the same category to the same customers in the same market. Therefore, the correct answer to the student's question is A. Direct competition
Step-by-step explanation:
The type of competition where businesses target the same customers in the same market but offer different products or services in the same category is known as monopolistic competition.
This kind of market features a large number of firms that sell differentiated products, which could include differences in characteristics, location, intangible aspects, and perceptions. Monopolistic competitors are firms that have a mini-monopoly on their own particular version of a product, while still competing with other products that are seen as substitutes.
Consider the Mall of America as an example, where numerous clothing stores like Ann Taylor, Urban Outfitters, and Banana Republic offer different styles and brands of clothing, but all target consumers looking to purchase apparel. Though their offerings are not identical, these stores are in direct competition with the retail clothing market.
Therefore, the correct answer to the student's question is A. Direct competition.