Ch. 15 Monopolistic Competition

entry and exit

no barriers to entry. so the firms cannot make economic profit in the long run.

Monopolistic Competition is a market structure in which

-a large number of firms compete -each firm produces a differentiated product -firms compete on price, product quality, and marketing -firms are free to enter and exit

Like perfect competition, the market has a large number of firms. Three implications are

-small market share -no market dominance -collusion impossible

Marketing

Advertising and packaging

Price

because of product differentiation, the demand curve for the firms' product is downward sloping

Quality

design, reliability, after-sales service, and buyer's ease of access to the product.

product differentiation

is making a product that is slightly different from the products of competing. A differentiated product has close substitutes but it does not have perfect substitutes. When the price of one firm's product rises, the quantity demanded of that firm's product decreases.