Chapter Preview: In Chapters 5 and 6, we set up and examined “perfect competition,” a model of a market that assumes many firms with free entry into the market. We discovered that, in general, perfectly competitive markets serve society’s needs very effectively. In Chapter 7, we moved to the other extreme, looking at “monopoly” industry, wherein there is only one firm, which preserves its unique position through the imposition of substantial barriers to entry. With some qualifications, we concluded that monopoly does not usually serve society well.
By the end of this chapter, you will be able to:
• Identify the features of a monopolistically competitive firm and industry.
• Define product differentiation ...