Learning objectives
Describe the characteristics of monopolistic competition: many firms, differentiated products, low barriers to entry and some control over price
Draw the short-run diagram for a monopolistically competitive firm and identify its profit-maximizing output, price and profit or loss
Explain how entry and exit shift each firm's demand curve until long-run equilibrium is reached with demand tangent to average total cost and zero economic profit
Explain why the long-run outcome involves excess capacity and is neither allocatively nor productively efficient
Explain the role of advertising and other non-price competition in creating product differentiation
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