Economics Monopolistic Competition Questions
Monopolistic competition is a market structure that combines elements of both monopoly and perfect competition. It is characterized by the following features:
1. Large number of sellers: In monopolistic competition, there are many firms operating in the market, each producing a slightly differentiated product.
2. Differentiated products: Each firm in monopolistic competition offers a product that is slightly different from its competitors. This differentiation can be based on factors such as branding, quality, design, or location.
3. Easy entry and exit: Firms can enter or exit the market relatively easily due to low barriers to entry. This leads to a relatively high degree of competition.
4. Independent decision-making: Each firm in monopolistic competition has the freedom to set its own price and quantity of output, based on its perceived market demand and cost conditions.
5. Non-price competition: Due to product differentiation, firms in monopolistic competition engage in non-price competition, such as advertising, marketing, and product development, to attract customers and create brand loyalty.
6. Limited market power: Unlike a monopoly, firms in monopolistic competition have limited market power. They have some control over the price of their product, but they face competition from other firms offering similar products.
7. Imperfect information: Buyers may have imperfect information about the differentiated products available in the market, which can lead to brand loyalty and customer preferences.
In comparison to other market structures, monopolistic competition differs from perfect competition in terms of product differentiation and non-price competition. It differs from monopoly in terms of the number of firms and the degree of market power.