EBK PRINCIPLES OF MICROECONOMICS (SECON
EBK PRINCIPLES OF MICROECONOMICS (SECON
2nd Edition
ISBN: 9780393616149
Author: Mateer
Publisher: W.W.NORTON+CO. (CC)
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Chapter 12, Problem 1QR
To determine

The necessity of product differentiation on monopolistic competition.

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Explanation of Solution

The monopolistic competition is a market structure that is characterized by the entry of a large number of firms into the market, no barriers to entry and exit, product differentiation, and some control over the market price. Thus, monopolistically competitive firms exhibit their market power by product differentiation.

Monopolistically competitive firms can differentiate their product by their location, style, product features, advertising, quality, and quantity. Differentiating product in a way that shows the locality by customers causes a decrease in the elasticity of products, an increase in their market power, and an increase in the price of goods in the market.

Economics Concept Introduction

Monopolistic competition: Monopolistic competition is an imperfect market structure that has a relatively large number of buyers and sellers in the market, differentiated products, some control over the market price, and a few barriers to entry and exit.

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