Characteristics of monopolistically competitive firm

Question 1

Characteristics

Answer 1

• large no. of sellers
• product differentiation
• no barriers to entry and exit
• imperfect knowledge

Question 2

Large no. of sellers

Answer 2

• ensures keen competition
• all small firms
• produce small share of total mkt supply (like PC firm)
• has some control over px due to product differentiation (ie. diff flavours)

Question 3

Product differentiation

Answer 3

• ie. packaging, brand name, taste
• real or imaginary
• real: pdt design, quality
• imaginary: packaging, branding

Question 4

No barriers to entry and exit

Answer 4

• FOP are mobile

Question 5

Imperfect knowledge of mkt

Answer 5

• consumers dont know how px are determined
• potential competitors no perfect knowledge of tech or skills required to produce and sell
• firms able to max profits, but weaker due to close sub