Page 2 - Lession Note - Main Mkt Forms-75

Monopolistic Competition

Meaning:
It refers to a market situation in which there are many firms which sell closely
related but differentiated products. Market for such products are toothpaste,
soap, air conditioners etc.
2. Features of monopolistic competition
(a) A large number of firms:
The number of firms selling similar product is fairly large, but not very large as in
perfect competition..
(b) Product differentiation:
In this type of market situation a producer can produce different products, but
that products should be a close substitute to each other. Product differentiation
means differentiating the product on the basis of brand, colour, shape etc.
(c) Selling cost:
It is the expenses which are incurred for promoting sales or inducing customers
to buy a good of a particular brand.
(d) Free entry and exit of firms:
New firms can enter the market, if found profitable. Similarly, inefficient firms
already operating in the market are free to quit the market if they incur losses.
3. Shape of Demand Curve Under Monopolistic Competition The demand curve
faced by a firm is negatively slope, (i.e. when price falls, demand rises) because
the firm can sell more only by lowering the price of its product because of product
differentiation.

*******************************************