Monopolistic Competition

Question 1

Definition

Answer 1

A market structure where firms have many competitor’s, but sell similar but not identical products.

Question 2

Short Run Equilibrium

Answer 2

One factor which is fixed

Question 3

Long Run Equilibrium

Answer 3

All factors are variable

Question 4

Demand Curve Explain SR

Answer 4

Large amount of firms selling similar but not identical products, the availability of substitutes means that the demand curve is elastic.

Question 5

Determine Price/Quantity SR

Answer 5

The firms are profit maximisers therefore they produce where MR=MC and get a certain price when comparing it to the D=AR curve. Don’t produce more produce more total cost than revenue.

Question 6

Short Run Explain

Answer 6

Compare price to ATC curve, the price is greater. Supernormal profits are made, box A,B,P,O.

Question 7

Characteristics

Answer 7

High degree of competition
Similar but not identical product
Large number of small firms
Easy barriers to entry/exit

Question 8

LR Equilibrium Definition

Answer 8

All factors are variable

Question 9

LR Monopolistic

Answer 9

Supernormal profit (SNP) is an incentive. More firms, AR curve more elastic customers have more choice. Increased amount of firms compete away supernormal profit.

Question 10

LR Profit Maximiser

Answer 10

Profit maximisers, loss in SNP, AR and MR shift to the left, more choice for consumers, reductions in AR, therefore MR same rate, move left until AR is tangential to the ATC.