when firms exit a perfectly competitive industry, the market supply curve shifts to the left

Finally, product differentiation may occur in the minds of buyers. Some intangible aspects may be promises like a guarantee of satisfaction or money back, a reputation for high quality, services like free delivery, or offering a loan to purchase the product. Intangible aspects can differentiate a product, too. A supplier to an automobile manufacturer may find that it is an advantage to locate close to the car factory. For example, a gas station located at a heavily traveled intersection can probably sell more gas, because more cars drive by that corner. A firm’s location can also create a difference between producers. Physical aspects of a product include all the phrases you hear in advertisements: unbreakable bottle, nonstick surface, freezer-to-microwave, non-shrink, extra spicy, newly redesigned for your comfort. We call products that are distinctive in one of these ways differentiated products. The term “monopolistic competition” captures this mixture of mini-monopoly and tough competition, and the following Clear It Up feature introduces its derivation.Ī firm can try to make its products different from those of its competitors in several ways: physical aspects of the product, location from which it sells the product, intangible aspects of the product, and perceptions of the product. However, firms producing such products must also compete with other styles and flavors and brand names. When products are distinctive, each firm has a mini-monopoly on its particular style or flavor or brand name. There are over 600,000 restaurants in the United States. Examples include stores that sell different styles of clothing restaurants or grocery stores that sell a variety of food and even products like golf balls or beer that may be at least somewhat similar but differ in public perception because of advertising and brand names. Monopolistic competition involves many firms competing against each other, but selling products that are distinctive in some way.

Analyze how advertising can impact monopolistic competition.Discuss entry, exit, and efficiency as they pertain to monopolistic competition.Describe how a monopolistic competitor chooses price and quantity.Explain the significance of differentiated products.By the end of this section, you will be able to:

When firms exit a perfectly competitive industry, the market supply curve shifts to the left