Economics 1021A/B Chapter Notes -Monopolistic Competition, Demand Curve, Perfect Competition

• School: Western University
• Department: Economics
• Course: Economics 1021A/B
• Professor: Michael Parkin

Document Summary

Monopolistic competition is a market structure in which: Firms compete on product quality, price, and marketing. Firms and free to enter and exit the industry. The presence of a large number of firms has three implications for the firms in the industry. Small market share: each firm supplies a small part of the total industry output, each firm has only limited power to influence the price of its product. Ignore other firms: must be sensitive to the average market price of the product, but the firm does not pay attention to any one individual competitor. Collusion impossible: would like to be able to conspire to fix a higher price called collusion, coordination is difficult and collusion is not possible. A firm practices product differentiation if it makes a product that is slightly different from the products of competing firms. It would be a close substitute, but not a perfect substitute.