2. Monopolistic Competition

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Last updated 8:45 AM on 5/8/26
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5 Terms

1
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Give 6 features of monopolistic competition

1. Imperfect competition

2. Large number of sellers

3. Different prices (price makers)

4. Similar/ differentiated products

5. Low entry + exit barriers

6. Productively and allocatively inefficient

2
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What profit is made in short run and long run monopolistic competition?

Short run: supernormal profit and losses can be made.

Long run: normal profit.

3
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Explain what happens to price/ profit over time in monopolistic competition.

- New firms are attracted by supernormal profit, so enter the market.

- Demand for the original firms fall.

- Equilibrium changes, and price falls. The curve becomes more elastic.

- Only normal profit can be made.

<p>- New firms are attracted by supernormal profit, so enter the market.</p><p>- Demand for the original firms fall.</p><p>- Equilibrium changes, and price falls. The curve becomes more elastic.</p><p>- Only normal profit can be made.</p>
4
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Draw a short run monopolistic competition diagram.

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5
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Draw a long run monopolistic competition diagram.

Must spend more to compete with newer firms.

<p>Must spend more to compete with newer firms.</p>