Question

Why most restaurants operate in monopolistic competition.

Answer 1

Restaurants operate under Monopolistic competition because the food offered by restaurants are not identical for them to operate under perfect competition. Monopolistic competition has features of both the perfect competition and a monopoly. As a monopoly, they set their own prices and as perfect competition, they compete against a large number of firms.

The key characteristic under monopolistic competition is the differentiation of the food, ambiance being offered. The food offered differs in taste, quality and the ambiance of the restaurants, quality of chefs hired is different under every restaurant. So,the restaurants charge according to the different features they offer to the customers. This enables them to set their own price to a certain level as the good and services offered by every restaurant is unique and they all compete to get the attention of the same customers in the market.