9- Monopolistic Competition Flashcards
Monopolistic competition
Similar to perfect competition but products are slightly differentiated.
Price setting power?
Price makers- small amount of price setting power
AR (demand) curve slightly downwards sloping.
Number of buyers and sellers?
Many buyers and sellers
Barriers to entry/exit?
Low barriers to entry and exit
Aim for firms?
Profit maximisers MR=MC
Brand loyalty?
Small amount of local brand loyalty.
Product homogenity?
Slightly differentiated products.
How to draw AR and MR curves?
AR curve twice as steep as MR curve.
Scope of economies of scale?
Potential scope of economies of scale.
Long run equilibrium
- MC=MR profit maximisers
- AC=AR normal profits as competitive pressures mean firm cannot make supernormal or subnormal profit/loss.
Examples of monopolistically competitive markets?
- Pubs
- Restaurants
- Hairdressers
- Local shops
Allocative efficiency?
No, as P>MC (under allocation) in long and short run
Productive efficiency?
No, not lowest point on AC curve- little economies of scale- not minimising costs
Dynamic efficiency?
No- no supernormal profits in the long run
