The correct answer is option 1, which states that monopolistic competition is characterized by differentiated products.

1. Differentiated products: In monopolistic competition, firms produce products that are slightly different from one another in terms of branding, quality, or features. This allows firms to have some control over pricing and creates a sense of product differentiation in the market.

2. Large number of buyers and sellers: While a large number of buyers and sellers are generally found in perfectly competitive markets, monopolistic competition can also have a significant number of firms operating in the market. However, this factor alone does not necessarily signify monopolistic competition.

3. Barriers to entry: Option 3 suggests that barriers to entry are signs of monopolistic competition, but this is incorrect. Monopolistic competition is characterized by relatively low barriers to entry, meaning that new firms can enter the market easily.

4. Homogeneous products: Option 4 states that homogeneous products are a sign of monopolistic competition, but this is incorrect. In monopolistic competition, products are differentiated, meaning they have distinguishing features that set them apart from each other.