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Monopolistic competiton

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How does monopolistic competition differ from a) pure competition; b) pure monopoly; c) oligopoly? Explain fully what product differentiation entails.

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Solution Summary

This solution discusses monopolitic competiton, pure competition; pure monopoly; and oligopoly

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Monopolistic competition
A type of competition within an industry where:

1. All firms produce similar yet not perfectly substitutable products.

2. All firms are able to enter the industry if the profits are attractive.

3. All firms are profit maximizers.

4. All firms have some market power, which means none are price takers.

Monopolistic competition differs from perfect competition in that production does not take place at the lowest possible cost. Because of this, firms are left with excess production capacity.

Pure Competition
Market for a ...

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