monopolistic competition
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Last updated 8:58 AM on 12/7/22
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6 Terms
1
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characteristics of monopolistic competitive markets
- many producers
- products are differentiated
- firms are price makers but with limited control
- barriers to entry and exit are low
- products are differentiated
- firms are price makers but with limited control
- barriers to entry and exit are low
2
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monopolistic markets in SR
produce where MR=MC and make supernormal profits; same as monopoly diagram
3
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monopolistic markets in LR
supernormal profits act as a signal for other firms to enter the market, incr market supply and decr demand for the individual firm
AR and MR curve shift inwards
firm makes normal profits in the LR
AR and MR curve shift inwards
firm makes normal profits in the LR
4
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are firms in monopolistic competition dynamically efficient?
SR: yes - make supernormal profits
LR: no - make normal profits
LR: no - make normal profits
5
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are firms in monopolistic competition allocatively efficient?
no as AR does not equal MC
6
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are firms in monopolistic competition productively efficient?
no as they are not producing where AC = MC and are unable to reach full EoS due to market saturation
however high competition leads to incentive to innovate which can lower average costs
however high competition leads to incentive to innovate which can lower average costs
