Explain Monopolistic competition with proper diagrams

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Monopolistic competition 
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Monopolistic competition is a market structure in which many firms sell products that are 
similar but not identical. 
Therefore, a monopolistic competitive market is a market structure of imperfect 
competition. It is characterized by a large number of buyers and sellers and each seller having a 
certain degree of monopoly power. Product differentiation is the key characteristic of this type of 
market. There is also free entry and exit in this market. Thus this market structure is a mixture of 
both monopoly and perfect competition.  
Examples of monopolistic competition: Some monopolistic competition examples are 
restaurants, computer softwares, furnitures etc. 
The term “monopolistic” refers that the characteristic of this market structure is like a 
monopoly. Here each firm has certain degree of market power, but they are not completely 
monopolists. 
The main characteristics of monopolistic competition are: 
i) Product differentiation: In a monopolistically competitive market, the firms sell 
products which are almost similar in characteristics, but not identical. This is known as product 
differentiation. 
ii) Free entry and exit: A monopolistically competitive market is characterized by 
free entry and exit. 
iii) Advertisement: Advertisement is also another important feature of this market. 
Every firm under this market structure has to incur advertisement cost to highlight their product 
to their customers. Thus there is a large practice of non-price competition. 
iv) Extensive knowledge:  In monopolistic competition, buyers do not have perfect 
knowledge, but they have relatively complete information about alternative prices.

Explain Monopolistic competition with proper diagrams

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