Consider the following two sentences.Because the demand curve of a monopolistically competitive firm is downward sloping, its marginal revenue is less than price. Because there is free entry into monopolistically competitive markets, in the long-run economic profits are driven to zero.

In economics, monopolistic competition is a market structure that combines the characteristics of a monopoly and perfect competition. It's a market structure where many companies compete to sell similar but differentiated products.  Here are some characteristics of monopolistic competition: - Low barriers to entry - Companies differentiate themselves based on pricing and marketing decisions - Companies compete on quality, price, and marketing - None of the companies enjoy a monopoly - Each company operates independently without regard to the actions of other companies  In a... Show more

In economics, monopolistic competition is a market structure that combines the characteristics of a monopoly and perfect competition. It's a market structure where many companies compete to sell similar but differentiated products. 

Here are some characteristics of monopolistic competition:
- Low barriers to entry
- Companies differentiate themselves based on pricing and marketing decisions
- Companies compete on quality, price, and marketing
- None of the companies enjoy a monopoly
- Each company operates independently without regard to the actions of other companies 

In a monopolistic competition, each seller produces a differentiated product that is easily distinguishable from its close substitutes. Companies compete on quality, price, and marketing. 
The concept of monopolistic competition was introduced by Chamberlin in 1933. British economist Joan Robinson developed the theory of monopolistic competition in 1933. 
In the long run, a monopolistically-competitive company will make zero economic profit. This is because demand will decrease and average total cost will increase. 
 

Related Test: Economics 101 Practice Test: Monopoly

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