3.4.3 - Monopolistic competition

• Monopolistic competition is a market structure that combines elements of both monopoly and perfect competition.
•  Characteristics of Monopolistically Competitive Markets:

  • Many Sellers:
  • Product Differentiation
  • Easy Entry and Exit
  • Non-Price Competition:
  • Limited Price Control
• In the short run, firms profit maximise at the point MC = MR

  
• In the long run, new firms enter the market since they are attracted by the profits that existing firms are making. This makes the demand for the existing firms’ products more price elastic which shifts the AR curve (the demand curve) to the left.

  
• Monopolistic competition in the short-run

  
• Monopolistic Competition in the Long- run