In a small town, a new bakery opens up, entering a market already dominated by two other bakeries. The new bakery offers unique recipes and personalized cakes. Given this scenario, which market structure best describes the situation, and how might it affect pricing strategies for all bakeries involved?

The market structure that best describes this situation is called "monopolistic competition. " In this type of market, many businesses sell similar but not identical products, which allows them to compete on quality, features, and price. The new bakery's unique recipes and personalized cakes give it a special edge, attracting customers who are looking for something different. As a result, all bakeries might adjust their pricing strategies; the existing bakeries may either lower their prices to compete or enhance their offerings to retain customers. For example, if the new bakery starts selling a popular flavored cake, the other bakeries might introduce their own versions or improve their recipes to keep their customers happy.