Monopolistic
Monopolistic
Characteristics of a monopolistically
competitive market
• Many buyers and sellers
• Differentiated products
• Easy entry and exit
Relationship to other market models
• As firms enter a
monopolistically
competitive
market, the
demand facing a
typical firm
declines and
becomes more
elastic.
Short-run equilibrium in a
monopolistically competitive industry
• Entry continues
until economic
profit equals
zero for a typical
firm.
• This equilibrium
is often referred
to as a
“tangency
equilibrium.”
Short-run equilibrium with economic losses
Long-run equilibrium
Monopolistic competition vs. perfect
competition
A monopolistically
competitive firm,
in the long run,
has “excess
capacity” – (i.e.,
it produces a
level of output
that is below the
least-cost level).
This is a cost of
product variety.
Monopolistic competition and efficiency