Economics Monopolistic Competition Questions
The characteristics of monopolistic competition are as follows:
1. Large number of sellers: There are many firms operating in the market, each producing a slightly differentiated product.
2. Differentiated products: Each firm produces a product that is slightly different from its competitors, either through branding, packaging, or other features.
3. Easy entry and exit: Firms can easily enter or exit the market due to low barriers to entry, allowing for new firms to compete with existing ones.
4. Non-price competition: Firms compete through advertising, product differentiation, and marketing strategies rather than solely on price.
5. Limited control over price: Each firm has some control over the price of its product due to product differentiation, but the market is not perfectly competitive, so firms have some ability to set prices.
6. Independent decision-making: Each firm in monopolistic competition makes independent decisions regarding production, pricing, and marketing strategies.
7. Imperfect information: Consumers may not have perfect information about all the products available in the market, leading to brand loyalty and differentiation.
8. Some degree of market power: While firms in monopolistic competition do not have complete market power like monopolies, they have some ability to influence market conditions due to product differentiation.
9. Relatively elastic demand: Due to the availability of close substitutes, the demand for a firm's product is relatively elastic, meaning that a small change in price can lead to a significant change in quantity demanded.
10. Short-run and long-run equilibrium: In the short run, firms can earn economic profits or losses, but in the long run, due to easy entry and exit, economic profits are competed away, and firms earn normal profits.