What is monopolistic competition?
What makes products sold by companies in monopolistic competition imperfect substitutes?
What do companies in monopolistic competition do with spare capacity?
When does monopolistic competition fall into government-granted monopoly?
What industries are often modeled using the theory of monopolistic competition?
Who is considered the 'founding father' of the theory of monopolistic competition?
What are the characteristics of monopolistically competitive markets?
What types of products do monopolistically competitive companies sell?
Why are monopolistically competitive companies inefficient?
Monopolistic competition of differentiated products that are not perfect substitutes
- Monopolistic competition is a type of imperfect competition with many producers competing against each other.
- Products sold by these companies are differentiated from one another, making them imperfect substitutes.
- Companies maintain spare capacity and ignore the impact of their own prices on the prices of other companies.
- Monopolistic competition falls into government-granted monopoly when in the presence of a coercive government.
- Models of monopolistic competition are often used to model industries such as restaurants, cereals, clothing, shoes, and service industries in large cities.
- The "founding father" of the theory of monopolistic competition is Edward Hastings Chamberlin.
- Monopolistically competitive markets have the following characteristics: product differentiation, many companies, freedom of entry and exit, independent decision making, market power, imperfect information, and inefficiency.
- MC companies sell products that have real or perceived non-price differences.
- There are many companies in each MC product group, giving each company a small market share.
- Each MC company independently sets the terms of exchange for its product.
- MC companies have some degree of market power, although relatively low, and face a downward sloping demand curve.
- Monopolistically-competitive companies are inefficient, foster advertising, and are allocative-inefficient.
Test your knowledge of monopolistic competition with our quiz! From the characteristics of monopolistically competitive markets to the "founding father" of the theory, this quiz covers all the basics. See if you can identify the key features of monopolistic competition and understand how it differs from other market structures. Perfect for students of economics or anyone interested in understanding the complexities of market competition.
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