Perfect Monopolistic Competition
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Is monopolistic competition more efficient or less efficient that perfect competition?
The competitiveness of the market structure refers to the extent to which individual firms have the power over that market, power to influence the price or other terms of which their product is sold. The less power an individual firm has to influence the market in which is sells its products, the more competitive is that market structure said to be. The extreme of competitive market structure occurs when each firm has zero market power. In such a case there are so many firms that each must accept the price set by the forces of market demand and supply. This extreme is called the perfectly competitive market structure. On the other extreme we have a monopoly market structure. This is defined as a single seller of a product or a good for which there are no close substitute. The monopolistic competition is a market structure that lies between pure monopoly and perfect competition.
The characteristics of a perfectly competitive market structure are as follows: The product that is sold by the firm in the industry is homogenous...