Monopolistic Competition has many firms with differentiated products, free entry/exit, and some pricing power, resulting in efficiency between perfect competition and monopoly. Characteristics: Many buyers and sellers (competitive pressure), Differentiated products (brand loyalty, quality differences), Free entry and exit (long-run zero profit tendency), Some pricing power (can raise price without losing all customers). Product differentiation: Through brand, quality, packaging, location, advertising, design. Demand curve: Downward sloping (less than monopoly, more than perfect competition), Facing some price elasticity of demand. Firm equilibrium: Produces where MR = MC; sets price from demand curve; short-run economic profit possible; long-run economic profit zero (entry erodes). Excess capacity: Long-run equilibrium at less than minimum ATC (wastes resources). Advertising role: Creates differentiation, builds brand loyalty, increases cost. Examples: Restaurants, clothing brands, bookstores, salons, retail shops. Comparison: More competitive than monopoly, less efficient than perfect competition. ICAI tests: Identifying differentiated products, understanding entry effects, equilibrium analysis. Exam tip: "Long-run zero profit despite P > MC" shows efficiency loss from differentiation (society pays for diversity).