Describe five characteristics of a monopolistic competitive market. (10 marks)

Characteristics of a monopolistic competitive market

Characteristics of a monopolistic competitive market.

1. There are many independent buyers and sellers of the commodity.
2. The products are close substitutes/differentiated /similar but differ by names shape/colour package! scent.
3. Free entry / exit - there are no barriers for new firms that require to supply the same commodity nor arc there barriers for those wishing to exit the market. Firms’ decision to enter or leave is influenced by profits or losses.
4. Wide knowledge of market. As buyers /sellers are aware of price/output market factors conditions.
5. Firms set their own prices - prices are set depending on cost incurred and demand in the market.
6. No single firm controls any factor of production - firms acquire factors at prevailing market prices / conditions.
7. Individual firms have highly elastic/gently sloping demand curve since commodities are close substitutes.
8. It is possible for a single/some firms to dominate/influence market price through extensive advertising/product promotion/differentiation.
9. All firms earn normal profits in the long run since supper normal profits attract new firms/losses make forms to leave/quit.

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