Question

What is a significant difference between a monopolistically competitive firm and a purely competitive firm?

1) Number of firms in the market
2) Product differentiation
3) Barriers to entry
4) Price determination

Answer 1

Product differentiation is a significant difference between monopolistically competitive firms and purely competitive firms.

Step-by-step explanation:

In a monopolistically competitive market, there are many firms selling differentiated products, meaning that each firm offers a slightly different product or service. On the other hand, a perfectly competitive market has a large number of identical firms selling identical products.

Product differentiation is a significant difference between monopolistically competitive firms and purely competitive firms. In a monopolistically competitive market, firms can differentiate their products through branding, packaging, quality, and other features, while in a purely competitive market, there is no product differentiation as all products are identical.

Therefore, the correct answer is option 2) Product differentiation.