Question

Differentiated product is a characteristic of

• A. only monopolistic competition
• B. only oligopoly
• C. both monopolistic competition and oligopoly
• D. none of these

Hint:

Product differentiation is a key feature in both monopolistic competition and oligopoly, where firms compete based on unique product features.

Answer 1

The Correct Option is C

Step 1: Understanding Product Differentiation:
Product differentiation occurs when firms offer products that are distinct from their competitors’ offerings, often in terms of features, quality, or branding. This characteristic is prominent in markets where firms compete by offering unique products rather than homogeneous ones. Step 2: Analyzing Market Structures:
- Monopolistic Competition (Option A): In monopolistic competition, many firms sell similar but differentiated products. Firms in this market structure compete based on product features, quality, and branding. Examples include restaurants, clothing brands, and tech gadgets.
- Oligopoly (Option B): In an oligopoly, a few large firms dominate the market, and they often sell differentiated products, such as in the automotive or smartphone industries. Though there are few firms, they still engage in competition based on product differentiation.
- Option (C) Both monopolistic competition and oligopoly: Both market structures involve differentiated products. In monopolistic competition, differentiation is based on non-price factors, while in oligopoly, firms may use differentiation to compete in a market with limited competition.
Step 3: Conclusion and Answer:
The correct answer is (C) because both monopolistic competition and oligopoly are characterized by differentiated products, though the degree and nature of differentiation may vary.