Monopolistic Competition

Next we will consider some slight variations on the perfect competition model. The first is the oddly named monopolistic competition model,2 which uses the same assumptions as the perfect competition model with one difference: The good sold may be heterogeneous. This means that while all sellers in the market sell a similar good that serves the same basic need of the consumer, some sellers can make slight variations in their version of the good sold in the market.

As an example, consider midsized passenger automobiles. Some firms may sell cars that are a different color or different shape, have different configurations of onboard electronics like GPS systems, and so on. Some firms may make the cars more reliable or built ...

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