EC111 Chapter Notes - Chapter 10: Monopolistic Competition, Average Variable Cost, Profit Maximization
Document Summary
Monopolistic competition describes a market where many producers offer products that are substitutes but are not viewed as identical by consumers. Because the products of different suppliers differ slightly - for example, some convenience stores are closer to you than others - the demand curve for each is. Each supplier has some power over the price it can charge. No buyer can influence the price however. The firms that populate this market are not price takers, as they would be under perfect competition, but, rather, are price makers. Because barriers to entry are low, firms in monopolistic competition can, in the long run, enter or leave the market with ease. In perfect competition, the product is a commodity, meaning it"s identical across producers (bushel of wheat or ounce of gold) In monopolistic competition, the product differs somewhat among sellers, as with the difference between one rock station and another. Sellers can differentiate their products in four basic ways: