MONOPOLISTIC COMPETITION

  1. Many sellers

  2. Differentiated product and some brand loyalty

  3. Many close substitutes

  4. Relative free entry in response to profits of existing firms

  5. Elastic demand for product

  6. The graph looks like monopoly at the outset

  7. But entry by new firms "carves up" existing market demand among more sellers

  8. The individual seller’s demand curve shifts left

  9. Long-term equilibrium where P = ATC (economic profits eliminated, like competition) but P > MC (like monopoly)

  10. Ultimately a higher price than under competition – the price of "variety"?

  11. Role of advertising

  12. Retailing is a primary example (like fast food)

Class Notes | Clint Johnson |  Economics & Finance | Departments & Majors
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