The attributes of monopolistic competition and its similarities to perfect competition and monopoly .
Explanation of Solution
The three main characteristics of monopolistic competition are as follows:
- 1. Many sellers: There are many firms competing with each other for the same customers.
- 2. Product differentiation: Each seller produces similar, but not identical products.
- 3. Free entry and exit: Firms can enter or exit the market without any restrictions.
Like in monopoly, monopolistic competitive firm faces a downward sloping demand curve as the price is greater than the marginal cost.
Also, similar to that of a perfectly competitive market, a monopolistically competitive firm drives zero economic profit in the long run. This is because, in the long run, price equals the
Concept introduction:
Monopolistic competition: It is an imperfect market structure in which many firms sell products that are differentiated from one another.
Monopoly: It is the market structure characterized by a single seller who sells products that have no close substitutes.
Perfect competition: It is the perfect market structure where there are large numbers of sellers and buyers, with sellers selling homogeneous products.
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Chapter 16 Solutions
Principles of Economics, 7th Edition (MindTap Course List)
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