Question

For what reason does monopolistic competition arise?

• A. Due to homogeneous good
• B. Due to non-homogeneous good
• C. Due to perfect substitute goods
• D. None of these

Hint:

In monopolistic competition, firms offer differentiated products that are not perfect substitutes, allowing them some market power.

Answer 1

The Correct Option is B

Step 1: Understanding monopolistic competition.
Monopolistic competition is a market structure in which many firms sell similar but not identical products. It arises when firms offer differentiated products, which means that the goods are non-homogeneous.

Step 2: Analyzing the options.
(A) Due to homogeneous good: This option refers to perfect competition, not monopolistic competition, as homogeneous goods are identical across firms.
(B) Due to non-homogeneous good: Correct. Monopolistic competition arises when firms sell differentiated products, meaning the goods are non-homogeneous.
(C) Due to perfect substitute goods: This would refer to perfect competition where products are substitutes for each other.
(D) None of these: This is incorrect because the correct answer is (B).

Step 3: Conclusion.
Monopolistic competition arises when firms sell differentiated products, meaning the goods are non-homogeneous. Therefore, the correct answer is (B) Due to non-homogeneous good.