Monopolistic VS Monopoly

Question 1

Similarities between Monopolistic Competition and Monopolies

Answer 1

• firms are price-makers
• downward d. curve
• Allocative inefficient in the LR
• Supernormal profit or subnormal profits in the SR

Question 2

Differences between Monopolistic Competition and Monopolies

Answer 2

Monopolistic Competition:
- Many firms that are small relative to the size of the market
- Free entry/exit
- Competition
- Lower prices, less efficiency
- Slight market power
- Shallow elastic D. curve
- Normal profit in LR
- Slight EOS
- Small r&d expenditure (Slight dynamic efficiency)

Monopoly:
- single large firm
- high barriers to entry
- Lack of competition
- High prices, inefficiency
- large market power
- steep inelastic D. curve
- Supernormal profit in the LR
- Large EOS
- Large r&d expenditure (dynamically efficient)