Monopolistic Competition

Question 1

What are the features of monopolistic competition?

Answer 1

• large number of buyers and sellers; all act independently; low concentration ratio
• in the long run there are no or low barriers to entry or exit
• firms produced different or non homogenous goods; competition is strong, plenty of switching takes place
• producers have some control over price
• information is widely spread but not perfect

Question 2

what is the diagram for short run monopolistic competition?

Answer 2

monopoly diagram:
- first mover advantage can charge high prices and restrict supply, market research is difficult etc
- supernormal profit

Question 3

What is the diagram for long run monopolistic competition?

Answer 3

• AR=AC at Q
• MC=MR at Q
• supernormal profit profit attracts entrepreneurs into the market
• when new firms enter the market, the demand curve shifts left and becomes more elastic as there are more substitutes

Question 4

Is a firm in monopolistic competition productively efficient?

Answer 4

SR: no
LR: no

Question 5

Is a firm in monopolistic competition allocatively efficient?

Answer 5

SR: No
LR: No

Question 6

Is a firm in monopolistic competition dynamically efficient?

Answer 6

SR: yes means and incentive
LR:

Question 7

Is a firm in monopolistic competition sales maximizing?

Answer 7

LR: yes
SR: they restrict supply and raise prices

Question 8

Is a firm in monopolistic competition revenue maximizing?

Answer 8

LR: no
SR: no

Question 9

Is a firm in monopolistic competition focusing on CSR?

Answer 9

In the short run as it requires supernormal profit