Which scenario best illustrates monopolistic competition?

Monopolistic competition is characterized by a market structure where many firms offer products that are similar but differentiated from one another. This differentiation usually comes in the form of variations in quality, branding, or features, allowing each firm to hold some degree of market power over its unique product.

The scenario of several coffee shops in a city providing unique flavors fits perfectly within the framework of monopolistic competition. Each coffee shop is able to attract customers with its distinct offerings, such as specialty beverages, unique blends, or personalized service. This differentiation allows them to compete with one another while also setting their prices independently.

In contrast, the other scenarios describe different market structures. A single soft drink brand represents a monopoly, where one company dominates the entire market without competition. Many tech companies producing identical phones indicate perfect competition, where firms sell undifferentiated products and have no control over the market price. Lastly, a few mega-corporations controlling a market suggests an oligopoly, where a small number of firms hold significant market power and can influence prices and outputs in a more coordinated way.