3 Marks Each

Question

Explain any three characteristics of Monopolistic Competition.

Vidyadip · Accepted Answer

Characteristics of monopolistic competition:
$1.$ Large number of sellers and numerous buyers:

There are numerous sellers in Perfect Competition. In monopoly there is only one seller, while in monopolistic competition there are many sellers. This means that there are neither numerous sellers, nor there is only one seller, but there are many sellers.
There are numerous buyers in monopolistic market and so they cannot individually influence the market. Also they cannot affect the price of the product.

$2.$ Product differentiation:

Product differentiation is a distinct characteristic of monopolistic competition. Product differentiation refers to the concept of differentiating a product from another product in terms of form, quality and nature. For example, two different models of bike but built on same basic structure.
A producer may produce a product with minor differences in terms of form, fragrance, taste, shape, weight and quality. These minor differences lead to availability of various products under product differentiation in monopolistic competition market.

$3.$ Free entry and exit of firms:

In a monopolistic competition it is easy for new firms to enter into an existing firm or to leave the industry.
When there is normal profit in the market, the free entry and exit of the firm decreases and stops.
The firms are generally not attracted by the normal profit and so the firms do not enter in such markets. Similarly, the existing firms in the market do not exit as they do not suffer losses.

Answer