monopolistic competition

Question 1

what is monopolisitc competiton

Answer 1

competitive maket structure with some charcateristics of a monopoly

Question 2

what are the 7 characterisitc of monpolistic competition

Answer 2

many buyers and seller (key)

sell *Slightky differentiated goods

firms are price makers

demand curve elastic

good info of mkt conditions

low BTE/E

Non price comp

firms are profit maximisers

Question 3

because goods are slightly differntiated firmms are

Answer 3

price makers

Question 4

firms are only lsightly price makers becuase and what does this mean for demand curve

Answer 4

very good substitutes are available so firms cant raise price signficiantly to exploot price making curves

so demand curve is ealstic

Question 5

what fo low BTE/e mean

Answer 5

so firms can enter and leave at relatively low costs and easily

Question 6

why is there non price comp

Answer 6

firms cant raise price significantly to make very high SNP

So focus on branding , quality of g/s

Question 7

give me 4 exmaples of monopolsitic mkts

Answer 7

clothing mkt , taxis , fast food , restaurants

Question 8

firm behaviour si differnt in the

Answer 8

SR and LR

Question 9

What diagram do you draw for SR

Answer 9

MONOPOLY DIAGRAM

Question 10

why do we draw monopoly diagram in SR

Answer 10

Because firms selling something relatively unique , GOT price making ability , profit max and end up with similar outcomes to monopoly

Question 11

when drawing monopolistically comp how do we have to amke demand curve

Answer 11

price elastic - show through writing to

Question 12

in the SR why is it possible for firms in monopolistic comp to make SNP

Answer 12

exploiting price making power given fact theyre selling a unique good so can be happy and make nice profits

Question 13

IN THE LR what wont last

Answer 13

SNP

Question 14

in the LR why wont SNP last

Answer 14

they’ll be eroded away

Question 15

in the LR why do new firms enter mkt

Answer 15

attracted by SNP

Question 16

why do new firms enter mkt attracted by SNP

Answer 16

Theres low BTE and good info of mkt conditions
So firms cna enter market and compete with establishedt firms ot erode SNP

Question 17

as new firms enter mkt in the LR wha happens

Answer 17

demand for individual firms in mkt shift to the left as consumers are shared across a large numer of new firms

Demand keep shifting left till AR = AC - normal profit

Question 18

what are th esteps to drawing a monopolisitc diagram

Answer 18

AR &MR curve first

MC -nike tick

Profit max P&Q which is MR = MC , Q1 na P1

AC - normal profit is new position as new first enter , D shifts left till NP made
Make sure AC touches AR and MC hits min of AC
BOTTOM DIAGRAM

Question 19

at q1 in long run AR = AC we have got

Answer 19

normal profit

Question 20

at first look when evaluating the LR what can we say

Answer 20

no alocative efficieny

no productive efficiencyt

no dynamic efficiency

Question 21

explain why we know there is no allocative efficiency

Answer 21

price is greater than MC so no alloc efficient in LR

Question 22

what are teh implication of no allocative efficiency in the LR

Answer 22

So consumers exploited in theory as prices greater than costs , ouptu and choice is restricted - bad for consumers

Question 23

How do we know we not productivley efficient and what is teh impact

Answer 23

were not on min point of AC curve so were voluntarily foregoing EOS another reason for higher prices in mkt as costs not minimised

Question 24

explain how we know there is no dynamic efficiency

Answer 24

no LR SNP ebing amde so not enough profit to be invested back into company for tech imporvemtns and better wualtiy products and innovation

Question 25

after evaluating with effficiencies how we have a x mkt structure comapred to x comp and x comp

Answer 25

ineffiecient mkt structure

comapred to perf comp and monopoly copetition

Question 26

but thinking hard what can we great economists do

Answer 26

make it sound like monpolisitc comp is hte best mkt structure

Question 27

how are we gonna jazz up teh allocative inefficieny comapre to monoply

Answer 27

no allocative efficiency in monop either but not as bad .

Decent competition so price making ability of firms is lower

so prie exploitation not as bad as monopoly
- loss of CS not as bad as monp

• so compared to monp allocative inefficency is no where nea as bad

Question 28

how are we gonna jazz up allocative inefiicney comapred to a perf comp mkt structure

what 2 things does pef comp have

compare this to real liek mkt example of mopoliittc ocmp

so what ae consumer willing to do

x can be even nseen as x

esp when x not as bad because …

Answer 28

perf comp does got allocative efficiency

but in perf comp we’ve got homo goods

which consumers wont want in mkts such as clothing and restaurants , we want differentiation

so were willing to pay more/erode some of our CS for differentiation

so allocative ineff can be seen as desirable

esp when exploitation not as bad as we think given there are good substitutes available

Question 29

compare productive einefficney to monoplositc comp

Answer 29

nowhere near as bad compared to monp , there’s good substitutes so firms can t afford to forego EOS to same extent as monop and charge higher prices

Question 30

compare productive efficiency to monopolistic comp

what is there not many of in perf comp - so what does this mean on mopolisitc side

P ineff could also be due to diff x of x
if got x than one product and range of prod processes - its harf to exploit

whereas if producing one good you can xx and achieve x and x

so prod ineff comes out of x x for x whic we are willing to pay x £

Answer 30

prod efficiency but in perf comp

not many EOS but monopolistic comp there are so any EOS being exploited are to greater extent than PC

so prices may acc still be lower than perf comp

P inefficiency in monopolistic comp might be due to product diff demands of consumer , our desire for variety may make it harder to exploit EOS as we have wide range of prod process -

if producing one good you can bulk buy and achieve financial and managerial ESO easily

• but more products = harder

so prod ineff comes out of consumer desire for diff which we wiling to pay slightly higher price for

Question 31

how may we get dyno efficiency

Answer 31

if SR SNP are enough to invest

Question 32

ina very comp mkt we can still get dyno efficiency if

Answer 32

noraml rpoftis are being reinvested

Question 33

why might normal profits be invested

Answer 33

could be just part of comp in mkt for firms tohave to reinvest e.g clothing frims if they dont reivnvest and bring in new fashion lines as new seasons come along they fall behind sig and become less comp

So even if extent of reinvestment is small we still see dyno efficient in monop comp mkts esp if reinvestment part of comp

Question 34

whats the other way we may get dyno efficiency

Answer 34

Firms may just reinvest to get a head of rivals even using very small scale profit to do so ,
so better than perf comp where no dyno efficiency + in monop where mght not occur many arg for dyno eff not to occur in monpo

Question 35

how can we conclude our eval for monopolistic comp

Answer 35

looking at reality - we overcame theoretical inefficiencies