Chp 16

This chapter covers a separate type of market whic has characteristics of a monopoly and a competitive market and is simply referred to as Monopolistic Competition. Monopolistic competition is a market structure in which many firms sell products that are similar but not identical. There are many sellers, product differentiation, and also free entry.  Each fimr produces a product that is at least slightly differnt from those of other firms. Thus rather than being a price taker, eaceh firm faces a downward-sloping demand curve. A monopolistic competitive firm can choose the quantity at which marginal revenue equals marginal cost and then uses the deman curve to find the price consistent with that quantity. In the short run a monopilistic competition and monopoly are similar because both choose the quantity and price. In the long run the process of exit and entry continues until firms are at zero-economoic profit. Zero economic profit is not always at the minimun of ATC; it's where price meets ATC. Also, long run equilibrium is characterized by price exceeding marginal cost and price being equal to average total cost. Zeero economic profit would be a difference between a monopilistic competition and a monopoly since monopolies can earn positive economic profit in the long run. There are two noteworthy differences between a monopolistic competition and a perfectly competitive market: excess capacity and the mark-up. Under monopolistic competition fimrs produce on the downward-sloping portion of the ATC whereas free entry in perfectly competitive markets drive firms to produce at the minimum of ATC.