Monopolistic competition is a particular market structure which means there are a large number of small firms and companies whose products and services are slightly differentiated with other competitors. (Stephen, I& Stuart, W. 2007: 147) Such as food market, apparel market, light industry product market. The characteristics of monopolistic competition can divided into several parts. As Hunter (1969:19) said, to begin with, product differentiation includes both internal and external differences. Internal differences contain quality, capability and so on. External differences contain packing, advertising and so on. Moreover, the consumption of firms and industries are more. In addition, it is more easily for companies to enter the market due to no requirement for too much investment and no need for high technology. Furthermore, manufactures have a slight impact on prices which causes high influence in short run and low influence in long run. Last of all, they face the downward sloping section of its curve which means the elasticity is less than perfect competitive market and more than pure monopolistic market. Monopolistic competition is also called imperfect competition that combines the characteristics both of perfect competition and monopoly. In perfect competition, goods and services are identical so that firms can entry freely. In contrast, pure monopoly just has a single seller because their goods are unique and firms who have monopolistic power are as a price maker. Unlike these two structures, monopolistic competition has its own features between them.

Long run defined that in a long period of time, whole scale of production can be varied. Normal profit is the minimum amount required to keep a firm in its current line of production. Monopolistic competition in the long run allows firms enter and exit until they are making exactly zero economic profit. From the diagram, it is easily to see the existence of supernormal profit gives much more freedom to the industry who wants to enter, and then the competition makes firms earn normal profit in the long run. To analyze the figures, firstly, consumers need to pay higher price than that paid in perfect competition because of the average cost curve is above the minimum point. (Stephen, I& Stuart, W. 2007: 149)Secondly, price exceeds marginal cost which leads to more profit for the monopolistically competitive firm. Thirdly, there is excess capacity in the monopolistic competition in the long run. E which shows that the average cost curve is tangential to the demand curve is a balanced point. F shows the average cost at the minimum level. This situation causes the demand and marginal revenue curves move to the left. (Stephen, I& Stuart, W. 2007: 149)While at the same time, the market system reaches the equilibrium which illustrates that no encouragement for new firms to entry and no encouragement for former companies exit.