When monopolistically competitive firms realize losses in the short run, some firms will exit the industry, increasing market shares and prices while eliminating losses for the remaining firms.
What Is Monopolistic Competition?
- When several businesses provide comparable but inferior substitutes for one another's goods or services, monopolistic competition ensues.
- The barriers to entry are low in monopolistic competitive industries, and decisions made by one firm do not immediately affect those of its competitors.
What happens to a monopolistically competitive firm?
- Due to the fact that it does not produce at the minimum of its average cost curve or where P = MC, a monopolistically competitive firm is inefficient.
- As a result, a firm that is monopolistically competitive would typically produce less at a higher cost and charge more than a firm that is perfectly competitive.
When monopolistically competitive firms realize losses in the short run, some firms will exit the industry, increasing market shares and prices while eliminating losses for the remaining firms.
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