Monopolistic Competition _ Boundless Economics.pdf -...

3/23/2018 Monopolistic Competition | Boundless Economics
Monopolistic Competition
Monopolistic Competition
Boundless Economics

3/23/2018 Monopolistic Competition | Boundless Economics
Defining Monopolistic Competition
Monopolistic competition is a type of imperfect competition such that
many producers sell products that are differentiated from one another.
LEARNING OBJECTIVES
Evaluate the characteristics and outcomes of markets with
imperfect competition
KEY TAKEAWAYS
Key Points
Monopolistic competition is different from a monopoly.
A monopoly exists when a person or entity is the
exclusive supplier of a good or service in a market.
Markets that have monopolistic competition are
inefficient for two reasons. First, at its optimum output
the firm charges a price that exceeds marginal costs.
The second source of inefficiency is the fact that these
firms operate with excess capacity.
Monopolistic competitive markets have highly
differentiated products; have many firms providing the
good or service; firms can freely enter and exits in the
long-run; firms can make decisions independently;
there is some degree of market power; and buyers and
sellers have imperfect information.
Key Terms
monopoly : A market where one company is the sole
supplier.

3/23/2018 Monopolistic Competition | Boundless Economics
Monopolistic competition : A type of imperfect
competition such that one or two producers sell
products that are differentiated from one another as
goods but not perfect substitutes (such as from
branding, quality, or location).
Monopolistic Competition
Monopolistic competition is a type of imperfect competition such that
many producers sell products that are differentiated from one another
as goods but not perfect substitutes (such as from branding, quality, or
location). In monopolistic competition, a firm takes the prices charged
by its rivals as given and ignores the impact of its own prices on the
prices of other firms.
Unlike in perfect competition, firms that are monopolistically competitive
maintain spare capacity. Models of monopolistic competition are often
used to model industries. Textbook examples of industries with market
structures similar to monopolistic competition include restaurants,
cereal, clothing, shoes, and service industries in large cities.

3/23/2018 Monopolistic Competition | Boundless Economics
Clothing : The clothing industry is monopolistically competitive because
firms have differentiated products and market power.