Abstract

A monopolistically competitive market structure has some features of competition and some features of monopoly. Monopolistic competition has the following attributes: (i) many sellers; (ii) product differentiation; and (iii) free entry. In the long run equilibrium, price equals average total cost, and the firm earns zero economic profit. This paper want to show that  the well known neoclassical microeconomics model on monopolistic competition implicitly has chaotic characteristics. The basic aim of this paper is to construct a relatively simple chaotic long-run monopolistic competitors's output growth model that is capable of generating stable equilibria, cycles, or chaos. A key hypothesis of this work is based on the idea that the coefficient, , plays a crucial role in explaining local stability of the monopolistic competitior's output,  where, d – the coefficient of the marginal cost function of the monopolistic competitor, b- the coefficient of  the inverse demand function, a - the coefficient of  average cost growth.

Key words: Monopolistic competition, long-run, equilirbrium conditions, chaos.