Textbook Guide Economics: Monopolistic Competition, Marginal Revenue, Perfect Competition

• School: UTSG
• Department: Economics
• Course: ECO101H1
• Professor: all

Document Summary

Monopolistic competition is a market structure in which there are many firms selling a differentiated product. Entry and exit into and out of the market is relatively easy: monopolistic competition is closer to pure competition than to monopoly. Oligopoly market condition with only a few sellers of a homogeneous product: oligopoly is closer to monopoly than to pure competition. This figure is useful in identifying the four types of market structure. If monopolistically competitive firms are making a profit, more firms will enter the market until the firms are making a loss. This process will continue until the firms are making only a normal profit, or zero economic profit. Price exceeds marginal cost because profit maximization occurs at the point where marginal revenue = marginal cost. Price = average total cost because there are no barriers to entry. There is no excess capacity in a perfectly competitive market due to the horizontal demand curve.