Page 182 - DECO101_MICRO_ECONOMICS_ENGLISH

Unit 12: Monopolistic Competition
Pavitar Parkash Singh, Lovely Professional University

Unit 12: Monopolistic Competition Notes

CONTENTS

Objectives
Introduction
12.1 Meaning and Features of Monopolistic Competition
12.2 Short Run and Long Run Equilibrium of a Firm
12.2.1 Equilibrium through New Entry Competition

12.2.2 Equilibrium when Competition is through Price Variation
12.2.3 Competition through Price Variation and New Entry
12.3 Monopolistic Competition and Advertising
12.4 Summary

12.5 Keywords
12.6 Self Assessment
12.7 Review Questions
12.8 Further Readings

Objectives

After studying this unit, you will be able to:

State features of monopolistic competition
Discuss short run equilibrium of a monopolistically competitive fi rm
Explain the long run equilibrium of a monopolistically competitive fi rm

Realise the role of advertising in monopolistic competition
Introduction

Monopolistic competition has an element of product differentiation. We can define a monopolistic

competitive market as a market in which there are a large number of firms and the products in the

market are close but not perfect substitute. The real world is widely populated by monopolistic
competition. Perhaps half of the economy’s total production comes from monopolistically

competitive firms. The best examples of monopolistic competition come can be retail trade,
including restaurants, clothing stores, and convenience stores.
12.1 Meaning and Features of Monopolistic Competition

Monopolistic competition is a form of market structure in which a large number of independent

firms are supplying products that are slightly differentiated from the point of view of buyers.

Thus, the products of the competing firms are close but not perfect substitutes because buyers do
not regard them as identical. This situation arises when the same commodity is being sold under
different brand names, each brand being slightly different from the others. For example, Lux,
Liril, Rexona, Hamam, etc., are brands of toilet soap, or Colgate, Cibaca, Prudent, Promise, etc.,
brands of toothpaste.

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