Relatively small number of producers
Rigidity of pricing policy
Product differentiation
Price equilibrium where MR = MC
Answer is Wrong!
Answer is Right!
The correct answer is A. Relatively small number of producers.
Monopolistic competition is a market structure in which there are many firms selling products that are similar but not identical. Firms in monopolistic competition have a degree of market power, but not as much as a monopoly. They can therefore charge a price above marginal cost, but not as high as a monopoly would be able to charge.
The key characteristics of monopolistic competition are:
- Many firms: There are many firms in a monopolistically competitive market. This means that each firm has a small share of the market and cannot influence the market price.
- Product differentiation: Products sold by firms in a monopolistically competitive market are similar but not identical. This means that firms can compete on factors such as price, quality, and marketing.
- Free entry and exit: Firms can freely enter and exit the market in a monopolistically competitive market. This means that if firms are making profits, new firms will enter the market to compete for those profits. If firms are making losses, firms will exit the market to avoid further losses.
- Price equilibrium where MR = MC: In a monopolistically competitive market, firms will produce at the point where marginal revenue equals marginal cost. This is the same as in a perfectly competitive market. However, the price that firms charge will be above marginal cost, because firms have a degree of market power.
Option A, relatively small number of producers, is not a characteristic of monopolistic competition. In a monopolistically competitive market, there are many firms.