Question:
Which of the following combinations of industry characteristics indicates the monopolistically competitive industry?
(1) High barriers / Homogeneous / Downward sloping.
(2) High barriers / Differentiated / Horizontal line.
(3) Low barriers / Homogeneous / Downward slopping.
(4) Low barriers / Differentiated / Downward sloping.
(5) High barriers / Unique / Horizontal line.
Correct Answer:
(4)
Answer Explanation:
Monopolistic competition is characterized by free entry and exit (low barriers to entry) and a large number of firms selling similar but not identical goods (differentiated products). Because products are differentiated, firms have slight market power, resulting in a downward-sloping demand curve.
Topic: Market Structures Year: 2024
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