Monopolistic Competition Flashcards

Flashcards on Monopolistic Competition

Monopolistic Competition

Market structure with many sellers, product differentiation, and free entry/exit in the long run.

Examples of Monopolistic Competition

Examples include apartments, books, bottled water, clothing, and fast food.

Market Power in Monopolistic Competition

Firm has market power in monopolistic competition.

Demand Curve Facing Firm (Monopolistic Competition)

Downward-sloping in monopolistic competition.

Long-Run Economic Profits (Monopolistic Competition)

Zero in the long run in monopolistic competition.

Free Entry/Exit (Monopolistic Competition)

Yes, there is free entry/exit in monopolistic competition.

Number of Sellers (Monopolistic Competition)

Many sellers in monopolistic competition.

Long-Run Economic Profits (Perfect Competition)

Zero in perfect competition.

Number of sellers in a Monopoly

One product.

Monopolistic Competition - Short Run

Similar to monopoly in the short run.

Monopolistic Competition - Long Run

Entry and exit drive economic profit to zero.

Profits in the Short Run (Monopolistic Competition)

Firms enter, decreasing demand and prices.

Losses in the Short Run (Monopolistic Competition)

Firms exit, increasing demand and prices.

Monopolistic Competitor in the Long Run

P = ATC and profit = zero

Excess Capacity

Operates on the downward-sloping part of its ATC curve producing less than the cost-minimizing output

Markup Over Marginal Cost

P > MC.

Monopolistic Competition and Welfare

Quantity is below the socially efficient quantity.