monopolistic competition Flashcards
what is monopolisitc competiton
competitive maket structure with some charcateristics of a monopoly
what are the 7 characterisitc of monpolistic competition
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
because goods are slightly differntiated firmms are
price makers
firms are only lsightly price makers becuase and what does this mean for demand curve
very good substitutes are available so firms cant raise price signficiantly to exploot price making curves
so demand curve is ealstic
what fo low BTE/e mean
so firms can enter and leave at relatively low costs and easily
why is there non price comp
firms cant raise price significantly to make very high SNP
So focus on branding , quality of g/s
give me 4 exmaples of monopolsitic mkts
clothing mkt , taxis , fast food , restaurants
firm behaviour si differnt in the
SR and LR
What diagram do you draw for SR
MONOPOLY DIAGRAM
why do we draw monopoly diagram in SR
Because firms selling something relatively unique , GOT price making ability , profit max and end up with similar outcomes to monopoly
when drawing monopolistically comp how do we have to amke demand curve
price elastic - show through writing to
in the SR why is it possible for firms in monopolistic comp to make SNP
exploiting price making power given fact theyre selling a unique good so can be happy and make nice profits
IN THE LR what wont last
SNP
in the LR why wont SNP last
they’ll be eroded away
in the LR why do new firms enter mkt
attracted by SNP
why do new firms enter mkt attracted by SNP
Theres low BTE and good info of mkt conditions
So firms cna enter market and compete with establishedt firms ot erode SNP
as new firms enter mkt in the LR wha happens
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
what are th esteps to drawing a monopolisitc diagram
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
at q1 in long run AR = AC we have got
normal profit
at first look when evaluating the LR what can we say
no alocative efficieny
no productive efficiencyt
no dynamic efficiency
explain why we know there is no allocative efficiency
price is greater than MC so no alloc efficient in LR
what are teh implication of no allocative efficiency in the LR
So consumers exploited in theory as prices greater than costs , ouptu and choice is restricted - bad for consumers
How do we know we not productivley efficient and what is teh impact
were not on min point of AC curve so were voluntarily foregoing EOS another reason for higher prices in mkt as costs not minimised
explain how we know there is no dynamic efficiency
no LR SNP ebing amde so not enough profit to be invested back into company for tech imporvemtns and better wualtiy products and innovation