Monopolistic competition
· Large number of sellers
· relative ease of exit / entry
· products are differentiated
actual differentiation
perceived differentiation
Only difference from pure comp. is that the demand faced by the firm is not perfectly elastic;
MR will lie below the Demand function (AR)
Relaxing the characteristic of outputs from homogeneous to "differentiated products" was the
basic change from the purely competitive market model.
Thedifferentiation of output results in the demand faced by each seller being less than perfectly
elastic.
· Since there are "many sellers," many substitutes for each seller's output is implied.
This suggests that the demand faced by a firm in a monopolistically competitive market is likely
more elastic than in a monopoly.
The elasticity obviously depends on the preferences and behavior of the buyers.
The negative slope of a firm's demand function in imperfect competition results in a different
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