378PART FIVEFIRM BEHAVIOR AND THE ORGANIZATION OF INDUSTRYnovel, for instance, is about $25, whereas the cost of printing one additional copyof 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 monopolisticcompetition.Monopolistic competition describes a market with the followingattributes:◆Many sellers:There are many firms competing for the same group ofcustomers.◆Product differentiation:Each firm produces a product that is at least slightlydifferent from those of other firms. Thus, rather than being a price taker, eachfirm 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 drivento zero.A moment’s thought reveals a long list of markets with these attributes: books,CDs, movies, computer games, restaurants, piano lessons, cookies, furniture, andso on.
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