Monopolistic Competition

Market Structure: Monopolistic Competition;

THE FOLLOWING NOTES ARE THE BASIC CONCEPTS IN THE MAINSTREAM (CAPITALISTIC, NEO-CLASSICAL) ECONOMICS.

Conditions

  • Similar with perfect competition
    • Many buyers and sellers
    • Easy entry and exit
  • Differentiated products rather than the homogeneous products

Features

  • 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.

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