Monopolstically competitive

Question 1

Disadvantages of monopolistically competitive markets

Answer 1

1.Dynamic efficiency limited in long run as there’s no supernormal profit
2.Firms are less efficient compared to perfect competition so they have x-inefficiency

Question 2

Advantages of monopolistically competitive markets

Answer 2

1.Firms are allocatively inefficient non the short and long run P>MC
2.Consumers get a wide variety of choice
3.Model is more realistic
4.Sueornormal profit in short run increase dynamic efficiency

Question 3

What point do firms sell at in monopolistically competitive markets to make normal profit

Answer 3

MC=AC

Question 4

What curve represents Price and cost of the product

Answer 4

1.Price= AR
2.Cost=AC

Question 5

What point do profit maximizing firms in the short run sell at?

Answer 5

MC=MR

Question 6

Example of monopolistically competitive markets

Answer 6

1.Hairdressers
2.Restaurants
3.Fast food
4.Household items
5.Clothing

Question 7

Characteristics of monopolistically competitive market

Answer 7

1.Similar but not identical goods
2.Imperfect information
3.Firms are short run profit maximsers
4.No barriers to entry and exit