New trade theory suggests that a key element of product development is the drive for product differentiation – creating strong brands and new features for products. New trade theory places importance on the model of monopolistic competition for explaining trends in trade patterns. New trade theory and monopolistic competition In Monopolistic competition, firms do produce differentiated products, therefore, they are not price takers (perfectly elastic demand). ![]() Therefore in long run, the market will be competitive, with firms making normal profit. In monopolistic competition there are no barriers to entry.
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