revenues minus total costs, which is the shaded area above the average cost curve.

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10.1 • Monopolistic Competition 243

Although the process by which a monopolistic competitor makes decisions about quantity and price is similar

to the way in which a monopolist makes such decisions, two differences are worth remembering. First,

although both a monopolist and a monopolistic competitor face downward-sloping demand curves, the

monopolist’s perceived demand curve is the market demand curve, while the perceived demand curve for a

monopolistic competitor is based on the extent of its product differentiation and how many competitors it

faces. Second, a monopolist is surrounded by barriers to entry and need not fear entry, but a monopolistic

competitor who earns profits must expect the entry of firms with similar, but differentiated, products.

Monopolistic Competitors and Entry
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