Economics Monopolistic Competition Questions
Monopolistic competition refers to a market structure where there are many sellers offering differentiated products to consumers. In this context, market equilibrium occurs when the quantity demanded by consumers equals the quantity supplied by producers at a particular price level. However, due to product differentiation, each firm has some degree of market power and can set its own price. As a result, in monopolistic competition, market equilibrium is achieved when each firm maximizes its profits by producing at a level where marginal revenue equals marginal cost, and charges a price that exceeds its marginal cost. This leads to a situation where firms in monopolistic competition have excess capacity and operate at less than full efficiency.