Presented by Miss Sanam Sattar

Introduction Monopolistic competition is a type of imperfect competition such that many producers sell products that are differentiated from one another as goods but not perfect substitutes.

Characteristics Many Sellers: Many firms competing for the same number of customers Product Differenciation: Firms produce, similar but uniquely different products Firms are not a price taker

Free Exit And Entry: Free barriers to entry. The adjust accordingly until the economic profits of all firms equate to zero. Extensive Knowledge Of Prices: Extensive knowledge of prices to both buyers and sellers

Lack Of Perfect Knowledge: Buyers do not have perfect knowledge about the market conditions. Pricing Decision: A firm under monopolistic competition is neither a price- taker nor a price-maker.

Presented by Tehmina Hazoor

Monopolistic competition in Short run Short-run economic profits encourage new firms to enter the market. This: Increases the number of products offered. Reduces demand faced by firms already in the market. Incumbent firms’ demand curves shift to the left. Demand for the incumbent firms’ products fall, and their profits decline.

Figure 1 Monopolistic Competition in the Short Run Copyright©2003 Southwestern/Thomson Learning Quantity 0 Price Profit- maximizing quantity Price Demand MR ATC (a) Firm Makes Profit Average total cost Profit MC

Short-run economic losses encourage firms to exit the market. This: Decreases the number of products offered. Increases demand faced by the remaining firms. Shifts the remaining firms’ demand curves to the right. Increases the remaining firms’ profits.

Figure 1 Monopolistic Competitors in the Short Run Copyright©2003 Southwestern/Thomson Learning Demand Quantity 0 Price Loss- minimizing quantity Average total cost (b) Firm Makes Losses MR Losses ATC MC

Monoplistic competition in long run Firms will enter and exit until the firms are making exactly zero economic profits.

Figure 2 A Monopolistic Competitor in the Long Run Copyright©2003 Southwestern/Thomson Learning Quantity Price 0 Demand MR ATC MC Profit-maximizing quantity P =ATC

Presented by Naseema Khan

Monopolistic competition vs Perfect Competition Monopolistic Competition Perfect competition Large number of buyers and large number of sellers Products sell are different to each other Sellers charge different prices Free exit and entry Large number of buyers and sellers Product is identical Perfectly competitive market Free exit and entry

Examples Clothing, Stationary Manufactures, Crops

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