Monopolistic competition is a type of market structure where many companies are present in an industry, and they produce similar but different products.
What are the characteristics of monopolistic competition?
None of the companies enjoy a monopoly, and each company operates independently without regard to the actions of other companies
The presence of many companies
Each company produces similar but differentiated products
Companies are not price takers
Free entry and exit in the industry
Companies compete based on product, quality, price, and how the product is marketed.
Non-price competition
Why don‘t firms in monopolistic competition normally have very high output?
There‘s many buyers and sellers so in most cases a business isn’t going to have a very high output.
Why do firms in monopolistic competition not achieve economies of scale?
Not achieving economies of scale as they are not big enough.
What type of demand is there in monopolistic competition?
elastic demand
What does the monopolistic competition diagram look like?
DIAGRAM BELOW:
In a competitive market, what causes profits to be competed away?
The entry of new firms into the industry, until the representative firm is making just normal profit (AR=AC).