Monopolistic Competition Flashcards
1
Q
Each firms has some characteristics
A
Which differentiates their product from their rivals. They have price setting ability. Downward sloping demand curve.
2
Q
Firms profit maximises
A
MR = MC behaving like a monopolist
3
Q
Markets in monopolistic competition
A
Are contestable and the economic profit acts as both a signal and incentive for new firms to enter the market.
4
Q
The existing firm’s products cannot be sufficiently differentiated
A
Forms a barrier to entry and thus new substitute reduces the demand for the incumbent firm product.
Shift demand curve to left and competing away from economic profit.
