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Monopolistic Competition and Differentiating Products and Services

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Explore how firms in monopolistic competition differentiate their products or services to generate a market niche and gain more control over their pricing. To what extent can product differentiation create barriers to entry? How can product differentiation help firms to increase their short-run profits? Give an example of a firm in monopolistic competition, and discuss the strategies used by the firm to differentiate itself and perhaps earn economic profits in the short run.

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Explore how firms in monopolistic competition differentiate their products or services to generate a market niche and gain more control over their pricing.

In the monopolistic competition there is a market structure marked by a high degree of competition which is not perfectly competitive. Product differentiation plays a crucial role here. In the monopolistic competition firms differentiate their products by making them different. This differentiation can be achieved by style/type, location or quality. For example auto manufacturers offer different type of cars to their customers such as sedans, suv's, minivans, sport cars or trucks. They may locate their stores in the city center so that more people would be ...

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This solution discusses differentiation strategies that are used in the monopolistic industries are explained with real-life examples. Reference used is included.

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