Question

Monopolistic competition

Answer 1

Monopolistic competition is a type of imperfect competition that has characteristics of both monopoly and perfect competition. In monopolistic competition market structure, there are many sellers who sell differentiated products in this market and price in this market is not given. A monopolistic competitive firm has some control over price and therefore set their own price to maximize profit in short run, just like monopoly. However, in long run each firm breaks even and earn normal profit just like a perfectly competitive firm in long run. In monopolistic competitive market, there are many firms and there is no barriers to entry and exit.