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Unformatted text preview: Chapter 16 Monopolistic Competition and Oligopoly Market structure refers to the physical characteristics of the market within which firms interact. Monopolistic competition is a market structure in which there are many firms selling differentiated products and few barriers to entry Oligopoly is a market structure in which there are only a few firms and firms explicitly take other firms response into account Characteristics of Monopolistic Competition: o Many sellers Many sellers in monopolistic competition also makes collusion difficult since when they are many firms, getting all of them to act as one is difficult. o Differentiated products Gives monopolistic competition its competitive aspect derives from many sellers Product differentiation gives it its monopolistic aspect o Multiple dimensions of competition Other factors of competition advertising, service etc. o Easy entry of new firms in the long run Entry must be relatively easy no significant barriers Firm has some monopoly power monopolistic competitor faces downward demand curve o Face a marginal revenue curve below price o At profit max output marginal cost will be less than price...
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