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.
