Which of the following factors signify monopolistic competition ?
Select the correct answer using the code given below :
- 1. Differentiated products
- 2. Large number of buyers and sellers
- 3. Barriers to entry
- 4. Homogeneous products
1 and 2 only
1, 2 and 3 only
3 and 4 only
2 and 4 only
Answer is Right!
Answer is Wrong!
This question was previously asked in
UPSC CDS-1 – 2022
1. Differentiated products: Firms sell products that are close substitutes but not identical (e.g., through branding, quality, features, location). This gives firms some degree of market power. This factor is correct.
2. Large number of buyers and sellers: There are many firms, each relatively small compared to the overall market, and many buyers. This factor is correct.
3. Barriers to entry: Monopolistic competition is characterized by low barriers to entry and exit, unlike monopolies or oligopolies. Significant barriers to entry would prevent new firms from joining when profits are high. This factor is incorrect.
4. Homogeneous products: Homogeneous products are characteristic of perfect competition (where products are identical), not monopolistic competition. This factor is incorrect.
Thus, only factors 1 and 2 are characteristic of monopolistic competition among the listed options.