State three characteristics of monopolistic competition. Which of the characteristics separates it from perfect competition and why ?
ANSWER: characteristics of monopolostic competition are as follows:
- large number of buyers and sellers.
- Free entry and exit of firms.
- Product differentiation.
- Selling cost.
In monpolistic competition, firms are price makers because they control the prices of goods and services whereas in perfect competition, firms are all price takers because no one firm has total market control. Contrary to a monopolistic market, a perfectly competitive market has many buyers and sellers, and consumers are able to choose where they buy their goods and services. Unlike a monopolistic market, firms in a perfectly competitive market have a small market share. Barriers to entry are relatively low and allow firms to enter and exit easily