Which of the following is NOT true of monopolistic competition?

A) Firms can compete on price and quality.

B) There is free entry and exit.

C) There are a large number of firms.

D) Firms produce a good that is a perfect substitute for their competitors' goods.

The correct answer is option D.

Explanation:

Monopolistic competition is a market structure where there is a large number of buyers and sellers. These sellers produce differentiated goods which are close substitutes.

Because of product differentiation their competition in the market. There is no or very little restriction on entry. The firms compete on the basis of price and quality.

Firms use an advertisement to increase their market share. The goods produced are not perfect substitutes, unlike the perfect competition.