T5 - Monopolistic Competition Flashcards
What is monopolstic competition
Many firms in a market, similar to perfect competition, but theres PD
Examples of monoplstic competition
Restaurants
Night clubs
High street shops
Hairdressers
What is monoplostic comp a combination of
Monopoly and competitive markets
Features of monopolistic comp
Price makers
Product diff
Many buyers andn sellers
Low barriers to entry and exit
Strong brand loyalty
More inelastic demand
NPC
Firms want to maxamsise profit
Almost perfect info
Heavy advertising
Inefficienies of monopolistic comp
Allocatively
Productively
Dynamic
Short run equilibrium of monopolistic comp
Supernormal short run profits, similar to perfect competition
Long run equilibrium of monopolistic comp
Increasing firms shifts market supply to the right
Will move to level of ATC = AR
Adv of monopolistic comp
Relatively contestable
Low BTE
More efficient than PC less than monopoly
May be DE, in terms of production and products
Disadvantages of monopolistic comp
Some diff creates waste
Advertisign can be wasteful
Allocative inefficiency
What is there tendency for in monopolstic comp
Excess capacity due to them not beign able to eploit their fixed factors, bc mass production is hard
What may the ineffciencies of allocative and productive be outweighed by
Diversity and choice
Limitations of monopolstic comp theory
Some firms will have better brand differentiation, will make SN profits
New firms will not be seen as close sub
Likely to be some barriers to entry
Hard to capture new brand loyalty
Assumption of normal profits are to simple
