Explain the ‘Free entry and exit of firms’ feature of monopolistic competition.

Monopolistic competition is a market form the main feature of which is the presence of large number of buyers and sellers dealing in differentiated product.

One of the important features of this form of market is “Free entry or exit of firm”. This means that under monopolistic competition –

•The firms are free to enter the industry or leave the industry.

•There are no legal restrictions regard entry and exit.

•However new firms, cannot manufacture products absolutely similar to those produced by existing firms because products of some firms may be legally patented. New firms cannot produce those products.