Economics Supply And Demand Questions
The characteristics of monopolistic competition are as follows:
1. Large number of sellers: There are many firms in the market, each producing slightly differentiated products.
2. Differentiated products: Each firm produces a product that is slightly different from its competitors, which allows them to have some control over the price.
3. Easy entry and exit: Firms can easily enter or exit the market due to low barriers to entry, which leads to a relatively large number of firms in the long run.
4. Non-price competition: Firms compete with each other through advertising, branding, product differentiation, and other marketing strategies rather than solely relying on price.
5. Limited control over price: While firms have some control over the price of their products due to product differentiation, they are still price takers to some extent as consumers have alternatives available.
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, which allows firms to differentiate their products and attract customers.
8. Some degree of market power: Firms in monopolistic competition have some degree of market power, allowing them to have a certain level of control over the price and quantity of their products.
9. Relatively elastic demand: Due to the availability of substitutes, the demand for products in monopolistic competition is relatively elastic, meaning that a small change in price can lead to a significant change in quantity demanded.
10. Short-run economic profits: In the short run, firms in monopolistic competition can earn economic profits due to product differentiation and market power. However, in the long run, these profits tend to be eroded as new firms enter the market.