3. Market Structures - Monopolistic

Question 1

What are the conditions for a monopolistically competitive market?

Answer 1

1. Slight product differentiation2. Many buyer & sellers3. Low barriers to entry/exit4. Non-price competition5. Firms profit max. & cons. utility max.6. Firms have some price making power

Question 2

How do the curves etc. differ from a monopoly market & PC market?

Answer 2

The cost curves again are the same - the demand curve is slightly downward sloping bc of the slight price making power - not as steep as a monopoly but steeper than PC

Question 3

What sorts of profit are made in the l & s-run in monopolistically competitive markets?

Answer 3

In the s-run SN profits are made - although the increased elasticity of the curves means they’re less than in a monopoly In the l-run only normal profits are made bc SN profits are competed away

Question 4

Is there alloc., prod., dyn., efficiency in a monopolistically competitive market?

Answer 4

Allocativley Efficient - not in the s-run or l-run bc in both cases lvls of output aren’t at where MC=ARProductively Efficient - not in the s-run or l-run bc production isn’t at the lowest point on the AC curveDynamically Efficient - not really, marginal SN profits in the s-run competed away