Th3.4: Monopolistic Competition Characteristics

Question 1

What are the three characteristics of monopolistic competition?

Answer 1

large number of buyers and sellers
no barriers to entry or exit
differentiated, non-homogenous goods

Question 2

Large numbers of buyers and sellers

Answer 2

each of whom are relatively small and act independently. this means that no one buyer or seller has a large price setting power

Question 3

No barriers to entry or exit

Answer 3

allowing new firms to enter when supernormal profits are being made and some to leave in the case of losses. as a result, only normal profits can be made in the long run

Question 4

Differentiated, non-homogenous goods

Answer 4

the difference between monopolistic competition and perfect competition is that monopolistic firms produce differentiated, non-homogenous goods/services. means individuals do have some price setting power and so the curve is downwards sloping