AP Microeconomics / Unit 4: Imperfect Competition
4.4 Monopolistic Competition
Notes
Many firms, differentiated products (restaurants, clothing), easy entry.
- Short run: profit possible. Long run: entry pushes profit to zero, with $P=ATC$ but above $\min ATC$ (excess capacity).
- Advertising and branding matter.
Practice
In the long run, a monopolistically competitive firm earns:
Free entry.
Excess capacity means the firm produces:
Not productively efficient.
Which is monopolistically competitive?
Many firms, different products.
Ready for more? Take the Unit 4 test.