One difference between perfect competition and monopolistic competition is that…?

One difference between perfect competition and monopolistic competition is that…?
A . In perfect competition, firms produce slightly differentiated products
B . A perfectly competitive industry has fewer firms.
C . Monopolistic competition has no barriers to entry
D . Firms in monopolistic competition face a downward-sloping demand curve

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Answer: D

Explanation:

Monopolistic competition exists in market where there are many competing producers but they will try to use product differentiation. Although their products may be very similar, their ability to differentiate means that they can act as monopolies in short run, irrespective of the actions of their competitors.

In perfect competition, there are no barriers to entry to the market or exit from the market. In monopolistic competition, there tend to be fewer barriers to entry or exit in these markets than in oligopolistic markets, but it doesn’t mean that there are absolutely no barriers to entry in monopolistic competition.

In perfect competition, the demand curve is perfectly elastic, which means that it will be horizontal. Otherwise, in monopolistic competition market, the demand curve will have normal downward slope.

LO 2, AC 2.2