In monopolistic competition, the products of different sellers are assumed to be

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BlackTom AI · Accepted Answer

The question asks: In monopolistic competition, the products of different sellers are assumed to be

In typical monopolistic competition, firms sell products that are close substitutes but are not perfect substitutes; they are similar yet differentiated, allowing each firm some market power over its own product.

Since the provided answer indicates option b is that the products are 'similar but slightly different,' here is how that aligns with theory: 
- Monopolistic competition features product differentiation, where each seller offers a product that is unique in some attributes (design, quality, branding, service) but remains largely substitutable for others. This creates downward-sloping demand for each firm’s product.
- The differentiation means products are not perfect substitutes (which would resemble perfect competition with identical products), but they are not completely distinct either (which would imply a monopolistic market with unique products). The realistic middle ground matches the phrase 'similar but slightly different.'

Why this choice makes sense in context:
- It captures the essence of monopolistic competition: slight product differentiation gives firms some pricing power while maintaining competitive pressure.
- It explains why break-even analysis and excess profits are not sustained in the long run, as new entrants imitate differentiated features, eroding excess profits.

Why other, unstated options would be inconsistent with monopolistic competition:
- If products were described as identical or perfect substitutes, that would describe perfect competition rather than monopolistic competition, implying no product differentiation and no pricing power for individual firms.
- If products were described as completely different or heterogeneous with no close substitutes, that would suggest a monopoly or a market with high product diversity and strong branding, not the typical many-firm setting of monopolistic competition where close but imperfect substitutes are the norm.

In summary, the characterization of products as similar but slightly different accurately reflects the core idea of monopolistic competition: differentiation exists, but products remain substitutable, preserving competition while allowing individual firms to influence prices to some extent.

In monopolistic competition, the products of different sellers are assumed to be

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