EXSC 206 Chapter Notes - Chapter 4: Monopolistic Competition, Demand Curve, Substitute Good
MONOPOLISTIC
COMPETITION
Instructor: Ghislain Nono Gueye
AUBURN UNIVERSITY
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Features of monopolistic competition
•Many sellers
There are many producers of a particular good, which is why this
market structure is competitive.
•Differentiated products
The products sold by all the firms are not exactly similar (they are not
perfect substitutes). Each firm attempts to make its products more
attractive to customers.
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Features of monopolistic competition (2)
•Low barriers to entry and exit
Barriers to entry/exit exist (unlike the perfectly competitive case);
however, they are not as high as in a monopoly. Entrepreneurs can still
enter the market if it is lucrative to do so.
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Document Summary
There are many producers of a particular good, which is why this market structure is competitive: differentiated products. The products sold by all the firms are not exactly similar (they are not perfect substitutes). Each firm attempts to make its products more attractive to customers. Features of monopolistic competition (2: low barriers to entry and exit. Barriers to entry/exit exist (unlike the perfectly competitive case); however, they are not as high as in a monopoly. Entrepreneurs can still enter the market if it is lucrative to do so. One way monopolistically competitive firms differentiate their product is by having special designs on their products. For example, it is easy to recognize an apple laptop (macbook) because of the design. Firms design their products such that they will be appealing to customers. Many businesses attract customers because of their locations. Many people go to gas stations, (cid:271)ar(cid:271)er shops, (cid:272)ar (cid:449)ash ser(cid:448)i(cid:272)es because of how conveniently they are located.