AP Microeconomics: Mono Comp Quiz

A monopolistically competitive market is characterized by imperfect competitors selling a slightly differentiated product. The best examples are restaurants. Because the firm has pricing power, the firm has a downward sloping demand curve and maximizes profits where marginal revenue equals marginal cost. The industry has both elements of monopoly and perfect competition so theories of both market structures are applied. In a mono-comp industry, there are short run profits, but the profits disappear in the long run. The firm is inefficient in that it has excess capacity.