ABSTRACT
This chapter presents the mainstream model of the monopolistically competitive firm in the short term and the long term. It considers some short case studies of how markets work and the strategic options available to firms in the type of market. The chapter utilizes a table or graph of a monopolistically competitive firm to determine the profit maximizing level of output and the amount of economic profit or loss the firm is experiencing in the short run. It analyzes how institutional characteristics and barriers to entry affect monopolistically competitive markets. Doctors, lawyers, dentists, physical therapists, contractors, and plumbers who own their own businesses all operate in monopolistically competitive industries. Manufacturing that can be done on a small or large scale and for which there are no significant barriers to entry is usually monopolistically competitive. Monopolistically competitive markets tend to be somewhat uneven, with some firms doing quite well while others just barely survive.
