Monopolistic Competition

Question 1

Why is competition imperfect tin reality

Answer 1

Forms tend to sell products that are heterogenous

Question 2

Assumptions of monopolistic competition (4)

Answer 2

Lots of firms
Each firms = small and acts independently
Low barriers
Products = non homogenous

Question 3

Demand curve of monopolistic competition (4+)

Answer 3

Heterogenous = have a certain amount of market power
It could raise prices without losing customers = It is not a price taker
However = many firms producing close substitutes = market power is weak
The demand curve is downward sloping but elastic

Question 4

SR equilibrium for monopolistic competition (2+)

Answer 4

Short run profit maximisers = MC = MR
Firms can make abnormal or losses = charges price based on demand curve

Question 5

Monopolistic in long run (3)

Answer 5

Freedom of entry/ exit = not maintain abnormal P
Forms attracted = increase in supply
Demand will fall = AC=AR

Question 6

Conditions in long run (3)

Answer 6

MC = MR = profit maximisers
AC = AR = competitive pressure means firms can’t make a loss of abnormal P
Those making losses will leave the industry