3.4.3- Monopolistic competition

Question 1

What are some examples of monopolistic competition?

Answer 1

Hairdressers, estate agents, and restaurants

Question 2

What are the characteristics of monopolositic competition?

Answer 2

-large number of buyers+ sellers
-no barriers to entry or exit
-produce differentiated goods
-good information
-non price competition
-profit maximisers

Question 3

What happens in the long run?

Answer 3

Due to no barriers of entry, firms enter the market due to SNP, which drives the price down so only normal profit is made

Question 4

Is monopolistic competition efficient?

Answer 4

-Not allocatively or productively efficient
-May be dynamically efficient due to differentiated products, but no SNP is being made