MonopolisticCompetitionandProductDifferentiation16chapter.pdfVIP

r Monopolistic Competition and Product e Differentiation 16 t 1. The three conditions for monopolistic competition are (1) a large number of producers, (2) differentiated products, and (3) free entry and exit. a. There are many bands that play at weddings, parties, and so on. There are no sig- nificant barriers to entry or exit. And products are differentiated by quality (for p instance, some bands have better musicians or better electronic equipment) or by style (for instance, different bands play different types of music). All three condi- tions for monopolistic competition are fulfilled. b. The industry for individual-serving juice boxes is dominated by a few very large a firms (for example, Minute Maid, Welch’s, and Kool Aid), and there are signifi- cant barriers to entry, in part because of the large costs (for example, advertising) involved in gaining any market share of the national market. Products are, how- ever, differentiated—if perhaps only in the minds of consumers. Because of the h small number of competitors, the industry is closer to oligopoly. c. There is a large number of dry cleaners, and each produces a product differentiat- ed by location: