Question

State with reasons whether you agree or disagree with the following statement:

Product differentiation is one of the important features of monopolistic competition.

Options

• Agree

• Disagree

Answer 1

I agree with the above statement.

Reason:

1. Product differentiation is the main feature of monopolistic competition. In monopolistic competition, there are many firms producing differentiated products.
2. In this market, the product of each firm is in some way differentiated from the product of every other firm in the market. Product differentiation may take the form of brand names, trademarks, peculiarity of package or container, shape, quality, cover, design, colour, etc.
3. This means that the product of each firm may find close substitutes and the cross elasticity of demand for each firm’s product is very high. For example, mobile handsets, soaps, toothpaste, two-wheelers, etc.

Thus, product differentiation is one of the important features of monopolistic competition.