There are “many and small enough” sellers are there in monopolistic competition. But now controls the price-output policy in full. Each seller has some influence over the price of its product.
If a firm under monopolistic firm raises the price of its products, it may lose some customers but not all and if it reduces the price of its product, it will attract more customers but riot all.
Therefore, the demand curve a firm facing under monopolistic competition is downward sloping. No seller by changing its price-output policy can have any significant effect on the sales of others.
2. Product differentiation:
The variation of the product refers to alternation in the quality of the product itself, technical changes, a new design, better materials, new package or container, prompt, service, colour etc. However, a firm will choose that nature of the product which gives maximum profit to the firm.
3. Selling cost:
The firm under monopolistic competition can influence the volume of its sales through varying selling outlays. Selling outlays influence both demand for his product as well as cost of the product. The expenditure made on advertisement is prominent among the various types of selling outlays.
4. The term “industry” is used in case of perfect competition. Industry under perfect competition is collection of firms producing homogeneous product. According to Chamberlin the term “group” is used in case of monopolistic competition instead of “industry”.
Under monopolistic competition group is a collection of producers producing fairly close substitutes instead of homogeneous product. Each product under monopolistic competition is slightly or perceptibly different from other products of the producers producing in similar lines.