Monopolistic

• Monopolistic competition


  • Relatively large number of sellers
  • Differentiated products
  • Easy entry and exit
  • Advertising
• Relatively large number of sellers


  Many firms competing for the same group of customers, resulting in small market shares, no collusion, and independent action
• Product differentiation


  Each firm produces a product that is at least slightly different from those of other firms, using methods like packaging, design, labeling, advertising and brand names
• Free entry or exit

  Firms can enter or exit the market without restriction, with new firms entering the industry with close substitutes to the existing brand
• Advertising


  Expenses and effort involved in product differentiation, firms advertise their product often heavily as a form of 'non-price' competition
• Non-price competition


  Firms in monopolistic competition use various non-price competition practices to attract customers, such as advertisements, promotions, discounts, free gifts, and after-sales service
• Demand curve in monopolistic competition

  Highly elastic, not perfectly elastic, with price elasticity based on the number of rivals and the degree of product differentiation
• Firm's behaviour in the short run

  1. Produce where MR=MC

  2. Short-run economic profits encourage new firms to enter the market, increasing the number of products offered and reducing demand faced by firms already in the market

  3. Short-run economic losses encourage firms to exit the market, decreasing the number of products offered and increasing demand faced by the remaining firms
• Long-run equilibrium


  Firms will enter and exit until the firms are making exactly zero economic profits, with price exceeding marginal cost but equalling average total cost