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Exploring Economics 7th Edition

Exploring Economics (7th Edition)

Book Edition7th Edition
PublisherCengage Learning
Chapter 14, Section 14.1, In Text Question, Exercise 01
Page 395

How is monopolistic competition like monopoly? How is it like perfect competition?





Thisse, J. F., & Ushchev, P. (2018). Monopolistic competition without apology. In Handbook of Game Theory and Industrial Organization, Volume I. Edward Elgar Publishing.



Bertoletti, P., & Etro, F. (2022). Monopolistic competition, as you like it. Economic Inquiry, 60(1), 293-319.


Suppliers in monopolistic competitive marketplaces are price makers in the same way as monopolies are, and they will behave in the same way in the short run. Another similarity between the two types of firms is that they will maximize their profits by producing items until their marginal revenues equal their marginal expenses. Companies confront a downward-sloping demand curve, which means that the price exceeds the marginal cost. Monopolistic competition is similar to monopoly competition. It is similar to perfectly competitive rivalry in that, over the long term, price equals average total cost, just as free entrance and departure reduce economic profit to zero in the absence of monopolistic competition.


Under perfect competition as well as monopolistic competition, there are a huge number of businesses. Both businesses are in direct competition with one another. Firms are free to enter and quit either market in either case. In both cases, the equilibrium is reached at the point where the marginal cost and marginal revenue are equal to one another. Firms might make above-average profits or suffer losses in any of the two market scenarios in the near term. Firms, on the other hand, make a typical profit in the long run.

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