Which of the following statements correctly identifies a difference between perfect competition and monopolistic competition?

Choose 1 answer:
(A) In perfect competition, firms cannot earn positive economic profits in the long run, but in monopolistic competition firms can earn positive economic profits in the long run.

B In perfect competition, there are barriers to entry, but there are no barriers to entry in monopolistic competition.

C In perfect competition, there are many buyers and many sellers, but in monopolistic competition there are few buyers and few sellers.

D In perfect competition, goods are identical, but goods are slightly differentiated in monopolistic competition.
(E) In perfect competition, firms markup the price of their good, but in monopolistic competition firms cannot markup the price of their good.

Question

Which of the following statements correctly identifies a difference between perfect competition and monopolistic competition?

Choose 1 answer:
(A) In perfect competition, firms cannot earn positive economic profits in the long run, but in monopolistic competition firms can earn positive economic profits in the long run.

B In perfect competition, there are barriers to entry, but there are no barriers to entry in monopolistic competition.

C In perfect competition, there are many buyers and many sellers, but in monopolistic competition there are few buyers and few sellers.

D In perfect competition, goods are identical, but goods are slightly differentiated in monopolistic competition.
(E) In perfect competition, firms markup the price of their good, but in monopolistic competition firms cannot markup the price of their good.

Accepted Answer

∻Solution∻ ‖ a ⋮ Perfect Competition: In perfect competition, goods are identical, meaning that all firms produce homogeneous products. ‖ ‖ b ⋮ Monopolistic Competition: In monopolistic competition, goods are slightly differentiated, meaning that each firm offers a product that is slightly different from its competitors. ‖ ∻Answer∻ ⚹ D: In perfect competition, goods are identical, but goods are slightly differentiated in monopolistic competition. ⚹ ∻Key Concept∻ ⚹ Product Differentiation ⚹ ∻Explanation∻ ⚹ The key difference between perfect competition and monopolistic competition is that in perfect competition, firms produce identical products, while in monopolistic competition, firms produce slightly differentiated products. This differentiation allows firms in monopolistic competition to have some control over their prices. ⚹◊How does the presence of product differentiation in monopolistic competition affect pricing and market outcomes compared to perfect competition?⍭ Generate me a similar question◊

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