Market Structure: Monopolistic Competition;
THE FOLLOWING NOTES ARE THE BASIC CONCEPTS IN THE MAINSTREAM (CAPITALISTIC, NEO-CLASSICAL) ECONOMICS.
- Similar with perfect competition
- Many buyers and sellers
- Easy entry and exit
- Differentiated products rather than the homogeneous products
- Like Monopoly, Marginal Revenue (MR) is downward and below the demand curve.
- In the short-run, the output is set when MR equals MC. And the price is set above the average cost (P > AC) => Abnormal profits
- Unlike Monopoly, the entry is allowed. In the long-run, the demand and price is adjusted until normal profits are made.
- In the monopolistic competition, many companies can get abnormal profits until it is stabilized. Therefore, the market in general is allocatively (P>MC) / productively (P > AC) inefficient.