- Monopolistic competition is a market structure with many small businesses that sell differentiated products. While the products are differentiated, they are still close substitutes for one another. - Firms in monopolistic competition have some control over pricing through product differentiation, but still face competition. Each firm's pricing decisions do not significantly impact the overall market price. - In the short run, firms maximize profits by producing at the point where marginal revenue equals marginal cost. In the long run, firms will exit if losing money and new firms will enter if others are earning profits, until all firms earn zero economic profit.

1. Ngô Chí Trung (1258085)
Nguyễn Phan Đăng (1558009)
Võ Tùng Thiên Ân (1268001)
Huỳnh Thanh Nguyên (1258042)
Ngô Thị Xuân Uyên (1258092)
Trần Hồng Đào (1258010)
Class: 12BSM2
Course: Microeconomics

2. Monopolistic
Competition

3. What is Monopolistic
Competition?
 Many small sellers
 Differentiated product
 Easy entry and exit

4. Differentiated product
 Product differentiation: the process of
creating real or apparent differences between
goods and services => price maker
 A differentiated product has close, but not
perfect substitutes.
 Firms center on non- price competition in
addition to price competition.

5.  Each firm is so small relative to the total
market that its pricing decisions have a
negligible effect on the market price.
Many Small Sellers

6. Easy Entry and Exit
 Not as easy as in Perfect Competition because
of product differentiation

7. Competition with Differentiated Products
The Monopolistically Competitive Firm in the
Short Run:
- Each firm in monopolistic competition faces
a downward-sloping demand curve.
- The monopolistically competitive firm
follows the monopolist's rule for maximizing
profit
1. MR = MC
2. It sets the price using the demand curve
to ensure that consumers will buy the amount
produced.

8. - The monopolistically competitive firm is
earning a profit or loss by comparing price
and average total cost.
1. If P > ATC, the firm is earning a profit.
2. If P < ATC, the firm is earning a loss.
3. If P = ATC, the firm is earning zero
economic profit.

9. Figure
Short-run

10. The Monopolistic Competition
in the Long-Run
_ When firms in monopolistic competition
are making profit, new firms have an
incentive to enter the market.
+ The demand curve faced by each firm
shifts to the left.
_ When firms in monopolistic competition
are incurring losses, firms in the market will
have an incentive to exit.
+ The demand curve for each firm shifts
to the right.

11. _ The process of exit and entry continues until
firms are earning zero profit.
+ Price is equal to average total cost and the
firm is earning zero economic profit.

12. Long-run

13. Example:

14. Advantages of Monopolistic Competition
1. The Promotion of Competition (lack of Barriers to Entry) .
2. Differentiation Brings Greater Consumer Choice and
Variety
- This provides greater choice and variety of products and
services for consumers to purchase .
3. Product and Service Quality – Development
- Firms improve product quality in order to gain economic
profit.
4.Consumers Become More Knowledgable of Products
- They can gain an understanding of the unique features
and aspects that certain products have compared to that of
others.

15. Disadvantages of Monopolistic Competition
1. They Can be Wasteful -- Liable of Excess Capacity
- Firms don't produce enough output to efficiently
lower the average cost and benefit from economies of
scale.
2. Allocatively Inefficient
- It is allocatively inefficient as not enough of the
product gets produced for society to benefit .
3.Higher Prices
- A higher price is charged than would be the case
under Perfect Competition.
4. Advertising – Wasteful.

16. Compare Monopolistic Competition with Monopoly
Monopolistic Competition Monopoly
Many products One product
Few barriers to entry No chance of entry
Forced Innovation No innovation
No market control Absolute market
control

17. Compare Monopolistic Competition with Monopoly
Monopolistic Competition Oligopoly
Many products Few products
Few barriers to entry High barriers of entry
Forced Innovation Little innovation
No market control Large market control

19. Many firms

21. •Product differentiation
The same basic functions: Fast food (chicken,
hamburger, french fries.

22. Differences in qualities such as type, style, quality,
reputation, appearance, and location that tend to
distinguish them from each other.

24. Easy entry and exit
•Less capital than railway,
airport, oil …
•No barriers to entry or exit.
•Firm unable to cover its
costs can leave the market
without incurring liquidation
costs

25. Market power
Price maker:
the process of
creating real or
apparent differences
between goods and
services

26. Market power
Price maker
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28. Thank for your
attention