Question

First, what are three characteristics (or attributes, as some economists lie to call them) that define monopolistic competition? Second, how is monopolistic completion like competitive markets? How is monopolistic competition like a monopoly? Finally, given your understanding of monopolistic competition from an economic and business perspective, does this mean markets and industries need to be heavily regulated? If so, why? If not, why not? You

Answer 1

Monopolistic competition is characterized by : large number of firms with differentiated products , easy entry and exit in the market , advertising and non price competition .

Monopolistic competition gets its competitive aspect from the presence of large number of firms and also large number of buyers . Relatively easier entry and exit .

The product differentiation and some degree of market power makes it like a monopoly .

Monopolistic competition is the most common market structure . It is a combination of extreme conditions like monopoly and perfect competition . The demand for a product depends on advertisement propaganda and also consumer preferences . Very close substitutes yet slightly differentiated products are available . The firm maximizes profit my equating marginal revenue with marginal cost . In the long run the monopolistically competitive firm earns normal profits . Heavy regulations is not required because easy entry and exit allures firms in a particular sector with less competition and higher profits .