(1) Monopolistic Competition

Topic Category

Monopolistic Competition

Publication Date



Monopolistic Competition, Product Differentiation, Intermediate Market Structure


This covers the market structure of Monopolistic Competition. It presents the characteristics of this market structure by contrasting them to those of Perfect Competition and Monopoly. It explains why these characterisics are important and explains that these have implications for the revenue functions and decision making of the firm. Total, Average and Marginal Revenue Functions are described and graphed. Finally, these revenue functions are combined with cost functions to examine profitability, using both the totals and the average/marginal approaches. Next it explains the story of how Monopolistically Competitive markets adjust in response to profit and loss signals. It uses graphs to illustrate this process, and how in the long run a zero profit outcome is achieved, but without achieving allocative efficiency. More generally, the Long Run Equilibrium properties of Monopolistic Competition are contrasted with those of Perfect Competition.

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Primary Discipline


Skills Delivered

Ability to identify and explain the standard characteristics of a Monopolistically Competitive Firm, and to contrast them with the characteristics of a Perfectly Competitive and Monopoly Firms. Ability to explain the consequences for the firm's revenue functions, and to graph these functions. Ability to combine revenue and cost functions in a single graph and do profit-volume analysis using both the totals and the average/marginal approaches. Ability to explain the market adjustment process in Monopolistic Competition. Ability to illustrate this process using a collection of graphs. Ability to identify and explain the Long Run Equilibrium Situation that emerges from this adjustment process.

Rigor Level



Previous Monopoly and Perfect Competition Videos