Econ chapter 14 notes and terms monopolistic competition. Monopolistic competition is a market structure in which: a large number of firms compete, each firm produces a differentiated product, firms compete on product quality, price, and marketing, firms are free to enter and exit the industry. Monopolistic competition has no barriers to prevent new firms from entering the industry in the long run. Examples of firms in monopolistic competition include: paint, lighting fixtures, furniture, electronics, bakeries, sporting and athletic goods, plastic bags, clothing, etc. There are two key differences between these two types of competition: Before we can conclude that something needs fixing, we must check out the available alternatives. The markup that drives a gap between price and mc in monopolistic competition arises from product differentiation: demand is not perfectly elastic because there are many substitutes. Product development is a costly activity, but it also brings additional revenue.