ECON101 Lecture Notes - Lecture 14: Monopolistic Competition, Pizza Delight, Perfect Competition

• School: University of Waterloo
• Department: Economics
• Course: ECON101
• Professor: Fatma

Document Summary

In perfectly competitive market structure, a large number of firms produce at the lowest possible cost, make zero economic profit and are efficient. In monopoly, a single firm produces for the entire market. It restricts output, produces at a higher cost and price than perfect competition and is inefficient. Most real world markets are competitive but not perfectly competitive, because firms in these markets have some power to set prices, as monopolies do. This type of market is called monopolistic competition. A monopolistically competitive market is similar to perfectly competitive market in two key respects: there are many firms in the market, entry by new firms is not restricted. But it differs from perfect competition in that the product is differentiated. Each firm sells a brand or a version of the product that differs in quality, or reputation or appearance, and each firm is the sole producer of its own brand.