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Monopolistic Competition

Monopolistic competition describes a market wherein many firms are selling a differentiated product and wherein entry into and exist from the industry is easy (not costly). The differentiated product characteristic means that the firms competing within the market provide products that are essentially substitutes for one another. Thus, firms in the market tend to compete on the bases of price, product quality, and marketing initiatives. The ease of market entry and exit, which leads to a market with many competitors, means that the competing firms do not depend upon one another. An oligopolistic market, in contrast to a monopolistically competitive market, is one that is characterized by a small number of competing firms whose product and marketing decisions are highly interdependent with similar decisions made by their competitors. An oligopolistic market may be one with either (a) differentiated products or (b) non-differentiated products. In either instance, however, because a small number of firms dominate the market, firms are highly dependent on the behavior of their competitors in the market. It is costly for firms to enter an oligopolistic market, and because of high entry costs, exit costs also tend to be high.

2. In a monopolistically competitive market, long-run profits are zero. The long-run equilibrium for a monopolistically competitive market is a situation wherein price equals total cost at equilibrium output, but wherein price is higher than marginal cost. This situation means that companies in a monopolistically competitive market have excess capacity because price is higher than marginal cost, but, should a company product more, it will lose money because total cost then will exceed the equilibrium price. In contrast with a monopolistically competitive market, it is possible for a company to earn a long-run profit in an oligopolistic market, depending upon the oligopolistic structure of the market. ...

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Monopolistic Competition. (1969, December 31). In LotsofEssays.com. Retrieved 06:48, March 28, 2024, from https://www.lotsofessays.com/viewpaper/1683493.html