4.3 Monopolistic Competition

• What is monopolistic competition defined as?

  Many firms, differentiated products
• Firms in monopolistic competition differentiate their products to attract consumers
• In monopolistic competition, no single firm dominates the market.
• How do firms in monopolistic competition differentiate their products?

  Branding, quality, features
• Easy entry and exit in monopolistic competition keeps profits at reasonable levels.
• Match the type of product differentiation with an example:

  Quality ↔️ Organic vs. conventional foods

  Features ↔️ Smartphones with different camera specs

  Branding ↔️ Clothing from Nike vs. Adidas
• Product differentiation allows firms in monopolistic competition to maintain some control over prices.
• What prevents a single firm from dominating in monopolistic competition?

  Many sellers
• In the short-run, firms in monopolistic competition produce where marginal revenue equals marginal cost.
• In the long-run, firms in monopolistic competition earn only normal profits.
• What are the two primary strategies firms use in monopolistic competition to attract consumers?

  Advertising and branding
• Advertising aims to increase consumer awareness and drive sales.
• Nike uses both advertising and branding to create customer loyalty and increase demand.
• What is the term for numerous independent firms operating in monopolistic competition?

  Many sellers
• In the long-run, firms in monopolistic competition earn normal profits when price equals average total cost.
• Monopolistic competition achieves both productive and allocative efficiency.

  False