ECON-2006EG Study Guide - Quiz Guide: Monopolistic Competition, Substitute Good, Perfect Competition
7 Mar 2021
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Two market structures that lie between perfect competition and monopoly are oligopoly and monopolistic competition. In both of these markets the seller must recognize actions of competitors. In oligopolies, economic profits in the long run can be positive. In monopolistically competitive markets, entry and exit drive economic profits to zero in the long run. There are several important variables such as the number of firms in the industry, the degree of product differentiation, entry barrier, and the presence or absence of collusion that determine the competitiveness of a market. Differentiated products refer to goods that are similar but are not perfect substitutes. Homogeneous products refer to goods that are identical, and so are perfect substitutes. Industries differ not only in whether or not their products are differentiated or homogeneous but also in the number of sellers present in the industry.
