The monopolistic competitor

Question

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Monopolistic competition involves firms with differentiated products, allowing them to have some pricing power. However, there are still many competitors in the market, leading to a downward-sloping demand curve but not as much market power as a monopoly. In the short run, a monopolistic competitor can make a profit by setting a price above their marginal cost. However, in the long run, other firms may enter the market or existing firms may expand their product differentiation, eroding the monopolistic competitor's market power and reducing profits to zero. Therefore, monopolistic competitors may make profits in the short run, but not necessarily in the long run.

The Monopolistic Competitor