The correct answer is option 3, monopolistic competition. In monopolistic competition, firms sell similar but not identical products. This means that products may have slight differences in terms of branding, quality, or other features.
Option 1, perfect competition, refers to a market situation where there are many small firms selling identical products. In perfect competition, there is no differentiation among products.
Option 2, imperfect competition, is a broad term that encompasses various market structures where firms have some degree of market power but are not monopolies. This can include both monopolistic competition and oligopoly.
Option 4, oligopoly, refers to a market situation where a small number of large firms dominate the market. These firms can have significant market power and may collude with each other to influence prices and market behavior.
In summary, monopolistic competition best describes a market situation where firms sell similar but not identical products.