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Question : Assertion: Monopolistic competition is characterized by many firms selling similar, but slightly differentiated products.

Reason: Product differentiation in monopolistic competition allows firms to have some control over prices.

Option 1: Both the assertion and reason are true, and the reason is a correct explanation of the assertion.

Option 2: Both the assertion and reason are true, but the reason is not a correct explanation of the assertion.

Option 3: The assertion is true, but the reason is false.

Option 4: The assertion is false, but the reason is true.


Team Careers360 18th Jan, 2024
Answer (1)
Team Careers360 24th Jan, 2024

Correct Answer: Both the assertion and reason are true, and the reason is a correct explanation of the assertion.


Solution : The correct answer is (a) Both the assertion and reason are true, and the reason is a correct explanation of the assertion.

In monopolistic competition, the assertion that many firms sell similar but slightly differentiated products is true. Each firm in a monopolistically competitive market offers products that are distinct in some way from the products of other firms. These differences could be based on branding, quality, design, features, or other factors. While the products are not identical, they are close substitutes, leading to competition among the firms.

The reason provided is also true. The differentiated products in monopolistic competition give firms some degree of market power. By offering unique features or attributes, firms can create a perceived difference in the eyes of consumers, enabling them to exercise some control over prices. However, this control is limited compared to a monopoly, as there are still close substitutes available from other firms.

Therefore, both the assertion and reason are true, and the reason correctly explains why product differentiation in monopolistic competition allows firms to have some control over prices.

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