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Principles of Economics- Mankiw (5th) 368

Principles of Economics- Mankiw (5th) 368 - 378 PA R T F I...

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378 PART FIVE FIRM BEHAVIOR AND THE ORGANIZATION OF INDUSTRY novel, for instance, is about $25, whereas the cost of printing one additional copy of the novel is less than $5. In this chapter we examine markets that have some features of competi- tion and some features of monopoly. This market structure is called monopolistic competition. Monopolistic competition describes a market with the following attributes: Many sellers: There are many firms competing for the same group of customers. Product differentiation: Each firm produces a product that is at least slightly different from those of other firms. Thus, rather than being a price taker, each firm faces a downward-sloping demand curve. Free entry: Firms can enter (or exit) the market without restriction. Thus, the number of firms in the market adjusts until economic profits are driven to zero. A moment’s thought reveals a long list of markets with these attributes: books, CDs, movies, computer games, restaurants, piano lessons, cookies, furniture, and so on.
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