Monopolistic Competition Flashcards
0
Q
Main features
A
- large number of small firms
- high degree of competition
- no/low barriers to entry and exit
- product differentiation
- price maker
- short run profit maximisers
1
Q
Definition of a monopolistically competitive market…
A
A market structure where a large number of small firms produce non-homogenous products and where there are no/low barriers to entry and exit
2
Q
A lack of barriers to entry mean that
A
Normal profit is earned in the long run. In the short run, if the market demand increases, the firms already in the market will make supernormal profits.
3
Q
Firms outside the market are…
A
Attracted by the potential to make supernormal profits and enter the market therefor driving down equilbrium price until normal profits are achieved again
