1. Each of the following goods and services is a differentiated product. Which are differentiated as a result of monopolistic competition and which are not? Explain your answers.
Ladders
Ladders are not differentiated as a result of monopolistic competition. A ladder producer makes different ladders (tall ladders versus short ladders) to satisfy different consumer needs, not to avoid competition with rivals. So two tall ladders made by two different producers will be indistinguishable by consumers.
Soft drinks
Soft drinks are an example of product differentiation as a result of monopolistic competition. For example, several producers make colas; each is differentiated in terms of taste, which fast-food chains sell it, and so on.
Department stores
Department stores are an example of product differentiation as a result of monopolistic competition. They serve different clienteles that have different price sensitivities and different tastes. They also offer different levels of customer service and are situated in different locations.
Steel
Steel is not differentiated as a result of monopolistic competition. Different types of steel (beams versus sheets) are made for different purposes, not to distinguish one steel manufacturer’s products from another’s.