blends elements of perfect competition and monopoly. Firms offer similar but differentiated products, giving them some control over pricing. This is common in everyday life, from restaurants to clothing brands.
In the long run, firms in monopolistic competition earn zero economic profit. While this resembles perfect competition, inefficiencies persist due to and prices above marginal cost. The trade-off is greater product variety for consumers.
Monopolistic Competition
Product Differentiation
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Firms differentiate products to distinguish from competitors