Monopoly vs Monopolistic Competition
Monopoly and Monopolistic Competition are two Market Structures concepts in AP Economics that students often mix up. In short: monopoly is a monopoly is a market structure with a single seller producing a unique product with no close substitutes and significant barriers to entry. Meanwhile, monopolistic competition is monopolistic competition is a market structure with many firms selling differentiated products and facing low barriers to entry. Here is how they compare side by side.
A monopoly is a market structure with a single seller producing a unique product with no close substitutes and significant barriers to entry.
A monopolist is the sole provider of a good or service and faces the entire market demand curve, allowing it to set price above marginal cost. Because of high barriers to entry, other firms cannot enter the market to compete.
Monopolistic competition is a market structure with many firms selling differentiated products and facing low barriers to entry.
Firms in monopolistic competition have some pricing power due to product differentiation but face competition from many rivals. In the long run, they earn zero economic profit as new firms enter when profits are positive.
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