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Textbook examples of industries with market structures similar to monopolistic competition include restaurants, cereal, clothing, shoes, and service industries in large cities.Ĭlothing: The clothing industry is monopolistically competitive because firms have differentiated products and market power. Models of monopolistic competition are often used to model industries.
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Unlike in perfect competition, firms that are monopolistically competitive maintain spare capacity. In monopolistic competition, a firm takes the prices charged by its rivals as given and ignores the impact of its own prices on the prices of other firms. 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 (such as from branding, quality, or location). Monopolistic competition: A type of imperfect competition such that one or two producers sell products that are differentiated from one another as goods but not perfect substitutes (such as from branding, quality, or location).monopoly: A market where one company is the sole supplier.Monopolistic competitive markets have highly differentiated products have many firms providing the good or service firms can freely enter and exits in the long-run firms can make decisions independently there is some degree of market power and buyers and sellers have imperfect information.The second source of inefficiency is the fact that these firms operate with excess capacity. First, at its optimum output the firm charges a price that exceeds marginal costs. Markets that have monopolistic competition are inefficient for two reasons.A monopoly exists when a person or entity is the exclusive supplier of a good or service in a market. Monopolistic competition is different from a monopoly.