Monopolistic Competition

Monopolistic competition is the form of market in which there are a large number of sellers of a particular product, with each seller selling differentiated products. So, the features are:-

1. A large number of buyers and sellers
2. Differentiated products
3. Freedom of entry and exit
4. Independent price policy

The demand and MR curves under monopolistic competition are similar to the monopoly. The curves are downward sloping as in monopoly.

• Short-run equilibrium under monopolistic competition- Under monopolistic competition, the equilibrium point is determined where MC = MR. The firms also have three situations of profits, losses, and zero economic profits in the short run.
• Long-run equilibrium under perfect competition- Under monopolistic competition, only zero economic profits exist in the long run. The equilibrium condition of the firms in the long run too remains the same i.e. MC = MR.
• Example- Restaurants, bakery shops, cosmetics industry, etc