Question

Can you identify the characteristics of a monopolistic competitive market structure? What is an example of a real-life monopolistic competitive market structure? Can you explain how a monopolistic competitive market structure determines its price and level of output? Please explain. Why do you suppose a monopolistic competitive market structure is one out of two predominant market structures in the United States? Please explain.

Answer 1

Characteristics of a Monopolistic competitive market structure:

• A large number of small firms serving the market.
• Each firm has some control over their product making their demand curve slope downward.
• Firms operate with an excess capacity i.e. not producing to their max level.
• Free entry and exit for the firms in the long run.
• The products are a close substitute for each other.

Real life example of monopolistic competition is Gas stations, Nigh clubs, and Bars. They all sell close substitute product, have free entry and exit in the market, have some control over their price etc.

The price structure and quantity of a monopolistic competition is same as a Monopoly. Were a firm tries to match its Marginal cost with its Marginal revenue.

A monopolistic competitive market is one out of two predominant market structure in the US because we have many small firms operating for consumers in the market. They all sell some amount of similar or close substitute product and have the huge excess capacity or unused capacity with them.