Question

In the 1920s and 1930s, economists became increasingly aware that there were industries that did not fit the model of perfect competition or pure monopoly. Two separate theories of monopolistic competition resulted. Edward Chamberlin of Harvard published the Theory of Monopolistic Competition in 1933. Chamberlin defined monopolistic competition as

Group of answer choices

1. a market situation in which a small number of firms produce similar products.

2. a market situation in which a large number of firms produce identical products.

3. a relatively large number of producers offering similar but differentiated products.

4. a relatively small number of producers offering similar but differentiated products.

Answer 1

Chamberlin introduced one of the theories of monopolisitc competition.

He stated that monopolistic competition is a market structure that consists of large number of firms. Each firm in such market produces close substitutes of each other but has traits of differentiation to the product that give consumers a way to differentiate between products of two firms and thus give some market power to firms to determine price and output.

There are no entry and exit barriers in such market and factors of production are fully mobile.

Thus,

Chamberlin defined monopolistic competition as a market situation with relatively large number of producers offering similar but differentiated products.

Hence, the correct answer is the option (3).