Monopolistic Competition Flashcards
Assumptions of monoplistic market?
Many firms, no barriers, slightly differentiated product (normally acheived by branding.)
Examples of monpolistic market?
Hairdressing, bars, clothing, hotels
Why does MR fall at twice the rate of the MR curve?
In order to sell more products the price of all the goods must fall.
Why is choice unique in monopolistic markets?
An excess capacity is created between the profit max point and the perfect competition output suggesting people in the market value choice compensating the the excess capacity as opposed to no choice and no excess capacity.
Can supernomal profits be acheived?
In the SR YES in the LR no due to freedom of entry and exit.
Do firms compete on price or non price methods?
Differentiated goods require non price competition such as innovation and advertisement.
