monopolistic competition Flashcards
what are the number & size of firms present in monopolistic competition?
- many, small firms
what is the implication of having many small firms in a monopolistically competitive industry?
- each firm’s independent actions have little to no impact on other firms as well as the market as a whole
what is the type of products sold in a monopolistically competitive firm?
- slightly differentiated from each other
what is the implication of firms selling slightly differentiated products in a monopolistically competitive industry?
- the goods sold by the different firms in the same monopolistically competitive industry are close substitutes
what is the degree of perfectness of information in a monopolistically competitive industry on the part of consumers?
- consumers do not have perfect knowledge of the price of the good sold by different firms,
- the quality of the good sold by different firms,
- & the availability of the good at different shops
what is the degree of perfectness of information on the part of the producer?
- producer do not have perfect knowledge of the price of the good sold by other sellers,
- the methods of production used by other producers,
- & the cost of inputs faced by other producers
are there entry barriers present in a monopolistically competitive industry in the LR?
- there are no barriers to entry in the industry in the LR
what are the implications of not having entry barriers in the LR?
- potential new entrants that wish to enter the industry have complete freedom to do so in the LR
what is the pricing behavior of monopolistically competitive firms?
- due to the C1 - C3(a) characteristics, MPC firms have some price setting ability
why do MPC firms have some price setting ability?
- the products sold by one firm are close substitutes of another firm, and are not perfect substitutes
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