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Characteristics of monopolistic competition
Relatively large number of sellers
Product differentiation
Easy entry and exit
Nonprice competition (Ex: advertising)
MR = MC
Price and Output in Monopolistic Competition
Demand is highly elastic
Short run profit or loss (MR = MC)
Long run only a normal profit
Monopolistic competition is inefficient
P > min ATC —>Productive inefficiency
P > MC —>Allocative inefficiency
Excess Capacity
Company produces more than its market demands
