Which of the following is an essential characteristic of monopolistic competition?

a. goods produced by different firms that are not perfect
b. substitutes price levels that fall lower than those of larger markets
c. lack of significant involvement of government regulators
d. extensive price and production coordination among firms

A

Explanation:

Monopolistic Competition

Monopolistic competition is not necessarily a perfect competition many producers sell products that are differentiated from one another (e.g. by branding or quality) and are not perfect substitutes. In monopolistic competition, a firm takes the prices charged by its rivals as given and ignores the impact of its own prices on the prices of other firms.

To understand monopolistic competition, let’s look at the market for soaps. There are many well-known brands like Lux, Dettol, Dove, etc. in this segment.

Since all of them produce soaps, it appears to be an example of perfect competition. However, on narrowing it down we find that each seller has a differenr variation to make it different from its competitors.

For Example Lux focuses on making beauty soaps, Dettol on antiseptic properties, Dove on smooth skin, etc. This allows each seller to develop their own niche for itself based on some factor other than price.